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<title>COOL PROJECTS – A Love Affair Revisited</title>
<link>http://harp-onthis.com/cool-projects-real-estate/</link>
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<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 19 May 2021 22:28:00 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[adaptive reuse]]></category>
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<category><![CDATA[Chicago]]></category>
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<description><![CDATA[Adaptive Reuse Of Underutilized Real Estate Cool Projects – A Love Affair Revisited We are entering a new frontier for adaptive re-use. The worldwide COVID-19 pandemic has left the urban commercial landscape in tatters. Shuttered vacant commercial space is commonplace […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading"><mark style="background-color:rgba(0, 0, 0, 0)" class="has-inline-color has-vivid-cyan-blue-color"><strong>Adaptive Reuse Of Underutilized Real Estate </strong></mark></h1>
<h1 class="wp-block-heading"><mark style="background-color:rgba(0, 0, 0, 0)" class="has-inline-color has-vivid-cyan-blue-color"><strong><em>Cool Projects</em> – A Love Affair Revisited</strong></mark></h1>
<p>We are entering a new frontier for adaptive re-use. The worldwide COVID-19 pandemic has left the urban commercial landscape in tatters. Shuttered vacant commercial space is commonplace throughout cities and towns. Doors and windows are boarded-up in shopping districts and entertainment districts that were thriving as recently as February 2020. Some have become barely recognizable. </p>
<p><strong>Looking to the Future</strong></p>
<div class="wp-block-image">
<figure class="alignleft size-large is-resized"><img data-recalc-dims="1" fetchpriority="high" decoding="async" data-attachment-id="1927" data-permalink="http://harp-onthis.com/cool-projects-real-estate/old-post-office/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?fit=1200%2C630" data-orig-size="1200,630" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="old-post-office" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?fit=300%2C158" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?fit=1024%2C538" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=400%2C210" alt="old post office" class="wp-image-1927" width="400" height="210" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=1024%2C538 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=300%2C158 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=768%2C403 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?w=1200 1200w" sizes="(max-width: 400px) 100vw, 400px" /></figure></div>
<p>What is to become of this vast inventory of vacant retail space, shuttered restaurants, empty hotels and office buildings, abandoned shopping malls, cavernous and empty theaters, stranded travel destinations, and more? Who will have the vision and courage to adapt and redevelop these properties into newly viable economic jewels? And when? </p>
<p>Make no mistake; it will happen. And it’s likely to happen much more quickly than you think. </p>
<p>While many are just beginning to peak their cautious heads out from under their COVID blankets, <em>value-add developers</em> are assembling to scoop-up valuable assets to be reimagined and repositioned for economic glory. If you believe the residential real estate market is hot, hold onto your collective hats. There are enormous profits to be made in commercial real estate and new business. These COVID-depressed sectors have struggled during the COVID shutdown, but unless the government blows it with short-sighted regulation and foolish tax policy, substantial economic revitalization is about to commence. Jobs, business opportunities, community-desired services and amenities, and great economic rewards are on the horizon. The ingenuity and creativity of value-add developers and the entrepreneurs they enable, coupled with vast amounts of available capital, are about to be unleashed in a torrent. </p>
<p>Pent-up demand is a powerful force. We are about to witness the creative power of visionary value-add developers as they reimagine and reinvent vacant and underutilized commercial space and turn it into some remarkably C<em>oo</em>l Projects. I can’t wait!</p>
<h1 class="wp-block-heading"><mark style="background-color:rgba(0, 0, 0, 0)" class="has-inline-color has-vivid-cyan-blue-color"><strong>C<em>OO</em>L PROJECTS – Real Estate Projects I <em>Love</em> to Work On. </strong></mark></h1>
<p>I love cool real estate projects. Cool projects are why I became a lawyer. Cool projects are why I come to the office each day. Cool real estate projects are why I did not become an astrophysicist (well, one reason – although, that might have been cool too). Cool projects are the reason I live, smile, dance, breath, scour the earth for new deals, jump for joy.</p>
<p>And by “c<em>oo</em>l”, I don’t mean in a thermal sense – but rather in a “<em>this project is so cool</em>” sense. I am referring to real estate projects that are awesome. Real estate projects that are fun. Real estate projects that make you say “<em>Wow – what a cool project!</em>”</p>
<div class="wp-block-image">
<figure class="alignleft size-large is-resized"><img data-recalc-dims="1" decoding="async" data-attachment-id="1527" data-permalink="http://harp-onthis.com/harp-photo-sept-2019-less-than-2mb/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?fit=360%2C402" data-orig-size="360,402" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="Harp Photo – Sept. 2019 less than 2MB" data-image-description="" data-image-caption="<p>R. Kymn Harp</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?fit=269%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?fit=360%2C402" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?resize=162%2C179" alt="" class="wp-image-1527" width="162" height="179"/><figcaption class="wp-element-caption">R. Kymn Harp</figcaption></figure></div>
<p>Cool projects don’t need to be costly projects in major urban centers – although those can be cool too. I’m talking about projects that are creative. Projects that require vision and imagination. Projects that take something mundane and turn it into something special.</p>
<p>Some people think I only like huge projects. To be honest, I do like huge projects, but largely because the huge projects I have worked on also happened to be cool projects.</p>
<p>Redevelopment of the commercial portions of Marina City in downtown Chicago was a cool project. Ground-up development of Sears Centre Arena in Hoffman Estates, Illinois was a cool project. Work on various mixed-use projects around the Midwest and upstate New York have been cool projects. But so has been the much smaller development of an 8,000 square foot microbrewery in the historic Motor Row District of Chicago using TIF financing; development of countless restaurant and entertainment venues throughout the Midwest; conversion of a multi-story industrial building into a high-tech office center; conversion of an outdated office building into a stylish, luxury hotel; adaptive reuse of outdated retail strip centers, bank buildings, city and suburban office buildings, bowling alleys, warehouses, industrial buildings, gas stations, and various small to medium sized special purpose buildings into modern, fully functional jewels – reinvented to provide much needed retail and service amenities for local neighborhoods and communities. It is not the size of the project that makes it cool – or the cost – it is the concept, imagination and creative challenge involved that makes the difference. At least for me.</p>
<h2 class="wp-block-heading"><span style="color: #008080;"><span class="has-inline-color has-vivid-cyan-blue-color"><strong>Cool Projects Test</strong></span></span></h2>
<p>Here’s a test [call it the “<span style="color: #000000;"><em>Cool Projects Test</em></span>”, if you will]:</p>
<p>Which of the following projects is more likely to end up on Kymn Harp’s list of <em>cool projects</em>?</p>
<span id="more-1173"></span>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 1:</span></em></span></h5>
<p>a. Developing a stand-alone bank building on a commerical outlot?</p>
<p><em>Or</em></p>
<p>b. Converting an historic firehouse into an upscale restaurant and wine bar with take-out bakery?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 2:</span></em></span></h5>
<p>a. Developing a 196 unit apartment complex on a large vacant lot?</p>
<p><em>Or</em></p>
<p>b. Redeveloping a former 3-story Main Street department store into a mixed-use project with first floor restaurants, sidewalk cafés, first floor retail, a side street residential lobby, apartments on the 2nd and 3rd floors, and a rooftop sundeck and fitness center?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 3:</span></em></span></h5>
<p>a. Developing a stand-alone strip shopping center?</p>
<p><em>Or</em></p>
<p>b. Developing retail shops within the underutilized first floor and lower level pedway serving an existing hotel/convention center?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 4:</span></em></span></h5>
<p>a. Developing a multiplex movie theater?</p>
<p><em>Or</em></p>
<p>b. Converting a former multiplex movie theater into a multi-tenant, specialty entertainment center with intimate live music venues, restaurants, an art gallery, and ethnic-focused shopping boutiques to serve a growing ethnic population in the surrounding community?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 5:</span></em></span></h5>
<p>a. Developing a national chain pharmacy on a corner lot?</p>
<p><em>Or</em></p>
<p>b. Redeveloping a former church as a music and theatrical venue with a restaurant, music store and gift shop?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 6:</span></em></span></h5>
<p>a. Developing a new suburban office tower?</p>
<p><em>Or</em></p>
<p>b. Coordinating economic redevelopment of a suburban downtown business district to transform a stagnant center of town into an affluent Millennial-friendly live-work-play lifestyle environment?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 7:</span></em></span></h5>
<p>a. Developing an industrial/office park?</p>
<p><em>Or</em></p>
<p>b. Developing a multi-user sports and entertainment complex with restaurants, retail and parking?</p>
<p>Which Project Choices listed above qualify as “<em>cool projects</em>”? Not everyone will agree. There is no absolute, right answer. And don’t get me wrong, if a client walked through my door with any of these projects, I would be happy to jump on-board. But, the truth is that – in a perfect world, if given a choice – I would choose Project Choice “<span style="text-decoration: underline;">b</span>” every time.</p>
<p>Why? There is just something exhilarating about taking tired, underutilized or functionally obsolete properties and reinventing them as revitalized developments that make users say: “<em>WOW – what a cool project!</em>”</p>
<p>Cool projects require a lot of planning, legal insight, and specialized due diligence to make sure a successful transformation can be achieved, but the value-added turnaround can be long-lasting and well worth the effort.</p>
<p>I am always on the hunt for cool projects. I enjoy working with all my clients, but my favorite clients are investors, developers and business owners with creative vision, who can imagine the future, and make it happen.</p>
<p>Not every project I work on is a <em>cool project</em>. As a real estate lawyer, I work on the deals that clients bring me. Some projects are just good investments waiting to be built. I’m fine with that. There is nothing wrong with building projects that just serve a need. I endorse the concept, and am always glad to help, so give me a call. I am at your service.</p>
<p><em>But</em> . . ., for sure if you are contemplating a <em>cool project</em> – please stop whatever else you are doing, pick up your phone and call me. My direct line is <strong><span class="has-inline-color has-vivid-cyan-blue-color">312-456-0378</span></strong>. Let’s talk. My partners and I can help you get it done – and, I assure you, we can each have a blast doing it.</p>
<p>There is no thrill quite like the thrill of like-minds working together in sync, with skill and creativity, to move a cool project forward, from concept to completion. I would love to be part of your team.</p>
<p><em>Thanks for listening.</em></p>
<p>Be c<em>oo</em>l. </p>
<p> Be creative.</p>
<p> Call me.</p>
<p>Thanks,<br /><em>Kymn</em></p>
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<title>JOIN US at #CRETrends2019</title>
<link>http://harp-onthis.com/join-us-at-cretrends2019/</link>
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<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 21 Aug 2019 15:33:00 +0000</pubDate>
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<description><![CDATA[Tuesday, September 10, 2019One North Wacker Conference Center – Chicago (UBS Tower)and Live Webcast About this Program]]></description>
<content:encoded><![CDATA[
<p><strong>Tuesday, September 10, 2019</strong><br /><strong>One North Wacker Conference Center – Chicago (UBS Tower)</strong><br /><strong>and Live Webcast</strong></p>
<figure class="wp-block-image"><img data-recalc-dims="1" decoding="async" width="800" height="500" data-attachment-id="1511" data-permalink="http://harp-onthis.com/join-us-at-cretrends2019/video-still/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/08/Video-still.jpg?fit=800%2C500" data-orig-size="800,500" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="Video still" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/08/Video-still.jpg?fit=300%2C188" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/08/Video-still.jpg?fit=800%2C500" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/08/Video-still.jpg?resize=800%2C500" alt="" class="wp-image-1511" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/08/Video-still.jpg?w=800 800w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/08/Video-still.jpg?resize=300%2C188 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/08/Video-still.jpg?resize=768%2C480 768w" sizes="(max-width: 800px) 100vw, 800px" /><figcaption><a href="https://elearn.iicle.com/iicle/library/video_presentations/276">https://elearn.iicle.com/iicle/library/video_presentations/276</a></figcaption></figure>
<p><a href="https://elearn.iicle.com/iicle/library/video_presentations/276">About this Program</a></p>
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<title>Your Real Estate Contract – Two Points to Consider</title>
<link>http://harp-onthis.com/1406-2/</link>
<comments>http://harp-onthis.com/1406-2/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 25 Apr 2018 19:08:10 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
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<category><![CDATA[closings]]></category>
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<category><![CDATA[loans]]></category>
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<description><![CDATA[Two Things You Need to Know As my readers know, I often represent real estate investors. When I draft a real estate contract I strive to make each provision absolutely clear in its meaning, and try to have it serve […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading">Two Things You Need to Know</h1>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="" class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>As my readers know, I often represent real estate investors. When I draft a real estate contract I strive to make each provision absolutely clear in its meaning, and try to have it serve as a workable road map to closing. Occasionally a client will draft a real estate contract on its own (or have a broker draft it), and sign it without my review or input. The client will then send it to me “<em>to close the transaction</em>“. Though I counsel clients that this can be a remarkably risky practice, some clients . . . being clients . . . do as they wish and ignore my advice. Such is life.</p>
<p>When faced with closing a transaction governed by a real estate contract I did not have a hand in preparing, I do my best. It is usually not a complete disaster, but there are often misunderstandings because of provisions that are not entirely clear.</p>
<p></p>
<p></p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1766" data-permalink="http://harp-onthis.com/1406-2/real-estate-agent-delivering-sample-homes-to-customers/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="real-estate-agent-Delivering-sample-homes-to-customers" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=400%2C266" alt="real estate agent Delivering sample homes to customers" class="wp-image-1766" width="400" height="266" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>There are also situations where a provision in a real estate contract may be legally sufficient, but the seller and/or its attorney simply don’t understand the actual meaning of the provision. With a clearer provision the misunderstanding could be avoided, but the legal ramifications of certain provisions still are what they are, rather that what some imagine them to be. The following are two examples I have run into in the last week that I believe deserve comment and explanation:</p>
<p><strong>NO MORTGAGE CONTINGENCY: </strong> Contrary to the understanding by some Seller’s attorneys and their clients, the fact that a real estate contract does not include a mortgage contingency – and may even expressly state that the transaction is <em>not contingent</em> upon the Buyer obtaining a mortgage – does <strong><em>not</em></strong> mean that the Buyer is not obtaining a loan and using mortgage financing. It simply means that the Buyer’s obligation to proceed to closing under the real estate contract is not <em>contingent</em> upon the Buyer obtaining a mortgage loan.</p>
<p>Many investor Buyers have strong relationships with their lender. They know what their lender requires, and know that the property they are acquiring will qualify as collateral for a mortgage loan from their lender. Consequently, they do not make obtaining a mortgage a <em>contingency</em> to closing in the real estate contract. Be that as it may, the Buyer may still obtain a mortgage loan, and may fund the property purchase using loan proceeds.</p>
<p>This is the practical equivalent to the situation where a real estate contract does contain a mortgage contingency, but the contingency has been satisfied because the Buyer has been approved for a mortgage loan. <em>At that point</em> the contingency expires and the contract is no longer subject to a mortgage contingency. The Buyer will still be closing using its lender and the proceeds of its mortgage loan. Probably no one disputes that.</p>
<p>Likewise, in a real estate contract where there is no mortgage contingency from the beginning, the absence of a mortgage contingency does not, without more, imply at all that there will be no mortgage lender. If the parties intend to provide that a contract is to be a cash transaction with no lender, that should be expressly provided in the real estate contract. Otherwise, the mere absence of a <em>mortgage contingency</em> does not mean there will be no lender – it<i> </i>simply means the Buyer is taking the legal and financial risk that a mortgage will be obtained.</p>
<p>2. <strong>AN “AS IS” CLAUSE DOES NOT MEAN NO INSPECTION</strong>: As with the absence of a mortgage contingency clause, as discussed in point 1 above, there seems to be some confusion about what an “AS IS” provision in a real estate contract means.</p>
<p>It has recently been suggested to me by Seller’s counsel that since the Buyer is purchasing property in “<em>AS IS”</em> condition that there is no need for the Buyer to have an inspection period with the right to inspect the condition of the property. To the contrary, where a Buyer has agreed to acquire property in <em>AS IS</em> condition, it is absolutely vital for the Buyer to have an opportunity to inspect the property, with the right to terminate the transaction if the condition of the property is materially worse than the Buyer expected. The <em>AS IS</em> provision in a real estate contract simply means that the Buyer does not expect the Seller to make any repairs to the property, or expect the Seller to provide closing credits for defective conditions in the property, and that the Buyer will not come back to the Buyer after closing seeking recourse for undisclosed defects.</p>
<p>Having a provision in an real estate contract providing for an inspection period during which the Buyer can thoroughly inspect the property and terminate the contract within that period if the property is physically deficient is not at all inconsistent with a provision that the Buyer is agreeing to acquire the property in <em>AS IS</em> condition. The need to inspect is a matter of due diligence for the Buyer. If the Buyer inspects the property (or fails to inspect the property) and does not exercise its right to terminate within the inspection period provided in the real estate contract, <em>then</em> the Buyer is bound to close regardless of the condition of the property – with the possible exception of additional damage occurring to the property after the contract date, or at least after expiration of the inspection period.</p>
<div class="wp-block-image">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="283" data-permalink="http://harp-onthis.com/about/rsp_logofull_2pms/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="RSP_LogoFull_2PMS" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109" alt="" class="wp-image-283" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=500%2C181 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></figure></div>
<p>These are simple points, but they are misunderstood more frequently than one would hope or expect. To avoid needless misunderstandings, careful and meticulous drafting is a solution. But still . . . this is not rocket science.</p>
<p>Thanks for listening. . .</p>
<p>Kymn</p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1406</post-id> </item>
<item>
<title>A PASSION FOR (REAL ESTATE) BUSINESS</title>
<link>http://harp-onthis.com/passion-real-estate-business/</link>
<comments>http://harp-onthis.com/passion-real-estate-business/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 13 Nov 2017 21:45:41 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[project entitlement]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[public-private partnership]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1380</guid>
<description><![CDATA[Lawyers are like most other business professionals. We want your business and we want your referrals – we just don’t always know the best way to ask for either. Take me for example. I’ve been handling commercial real estate transactions […]]]></description>
<content:encoded><![CDATA[
<p>Lawyers are like most other business professionals. We want your business and we want your referrals – we just don’t always know the best way to ask for either.</p>
<div class="wp-block-image">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="250" height="222" data-attachment-id="1379" data-permalink="http://harp-onthis.com/passion-real-estate-business/kymn_harp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?fit=250%2C222" data-orig-size="250,222" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="Kymn_Harp" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?fit=250%2C222" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?fit=250%2C222" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?resize=250%2C222" alt="" class="wp-image-1379"/></figure></div>
<p>Take me for example. I’ve been handling commercial real estate transactions and business deals for nearly 40 years. I’ve loved (almost) every day of it, and I look forward to many more (knock on wood). My clients appreciate my insights and value the guidance I provide. Other attorneys respect what I do, and brokers and CPAs like working with me because I strive for practical solutions to efficiently and effectively get the job done. I pay close attention to learn my clients’ business objectives, then work diligently and negotiate hard to get my clients what they expect – when they expect it. That’s what lawyers do. Or at least what all lawyers should do. For any client hiring a lawyer, what else is there? Achieving client objectives and getting the deal closed on time is why lawyers exist. Deals fail, for sure, but we can never be the reason they fail. Deals that fail are a waste of everyone’s time and money. Getting the deal done, if it can be done, is our value proposition.</p>
<p>Deals are my lifeblood – my passion. They’re why I wake up every morning and get out of bed. I love this stuff. I can’t explain exactly why that is – it just is. Why do musicians practice their instruments and play? Why do scratch golfers golf? Why do competitive skiers ski? It’s our passion. We don’t know exactly why – it comes from within. And we always need more.</p>
<p>Commercial real estate deals always come first for me, but in every commercial real estate project is a business. They go hand in hand. My preference for a good real estate deal over a good business deal is a matter of only slight degree. There’s not really a number one and a number two. It’s more like #1 and #1A.</p>
<p>So what’s the problem?</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1807" data-permalink="http://harp-onthis.com/passion-real-estate-business/businesspropertyrealestateandinvestmentconceptswithinvestorandwhite/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2021 HAKINMHAN\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Business,Property,real,Estate,And,Investment,Concepts,With,Investor,And,White","orientation":"1"}" data-image-title="Business,Property,real,Estate,And,Investment,Concepts,With,Investor,And,White" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?resize=1000%2C667" alt="business property,real estate and investment" class="wp-image-1807" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>The problem is, a lot of people don’t know I’m available to represent them. I write books and articles on commercial real estate. I give seminars on how to structure and close business and real estate transactions. I publish a commercial real estate and business blog. People think I’m busy, or that I only handle huge deals. The truth is, I <em>am</em> busy – but never too busy to handle another deal, large or small. In the words of the late, great Lucille Ball: “<em>If you want something done, ask a busy person to do it</em>.” We all loved Lucy!</p>
<p>The most shocking question I get from prospective clients is: “<em>Would you (I) be willing to handle my (their) next business or commercial real estate deal?</em>” Are they kidding? My answer is always an emphatic “<em>yes</em>”! It’s my passion. It’s my love. It’s what I live for.</p>
<p>To be sure, I’m a business professional, and I charge for what I do, but if you have a commercial real estate deal or business deal, and need representation, I’m in. Never be shy about calling me. We’ll work out the economics. The range of deals I handle is extraordinarily diverse. For a taste, look at my blog <a href="http://www.harp-onthis.com">Harp-OnThis.com,</a> or check out my latest book, Illinois Commercial Real Estate on<a href="https://www.amazon.com/Illinois-Commercial-Real-Estate-Kymn/dp/1524535095"> Amazon.com</a> or in your local public library. I love this stuff. I need this stuff. Of course I want to represent you. When can we get started?</p>
<p>So back to my initial point: I do want your business and your business referrals. Like many other business professionals, I just don’t know the best way to go about asking for it. What do you suggest?</p>
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<post-id xmlns="com-wordpress:feed-additions:1">1380</post-id> </item>
<item>
<title>Due Diligence Basics – Commercial Real Estate</title>
<link>http://harp-onthis.com/due-diligence-basics-cre/</link>
<comments>http://harp-onthis.com/due-diligence-basics-cre/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 16 Jun 2016 21:07:05 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1306</guid>
<description><![CDATA[Due diligence is essential when investing in, developing or financing commercial real estate. You must know the right questions to ask, and where to find the answers. The object is not simply to get to closing, but to assure that […]]]></description>
<content:encoded><![CDATA[
<p>Due diligence is essential when investing in, developing or financing commercial real estate. You must know the right questions to ask, and where to find the answers. The object is not simply to get to closing, but to assure that the project will function as intended after closing.</p>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>Due diligence is a standard of conduct. It is the amount of diligent inquiry due under the circumstances of your particular transaction. It requires that you determine, confirm and answer “yes” to every question required to be answered in the affirmative, and that you determine, confirm and answer “no” to every question required to be answered in the negative, for your project to proceed to closing and function as intended after closing.</p>
<p>In commercial real estate transactions, there are two layers of due diligence:</p>
<ol class="wp-block-list">
<li>Transaction due diligence; and</li>
<li>Property due diligence.</li>
</ol>
<p></p>
<p></p>
<h2 class="wp-block-heading"><span style="color: #000000;">TRANSACTION DUE DILIGENCE</span></h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1812" data-permalink="http://harp-onthis.com/due-diligence-basics-cre/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?resize=400%2C267" alt="financial innovation technology develop smart e commerce service and growth digital transaction" class="wp-image-1812" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>In any commercial transaction, transaction due diligence requires that we ask and know the answers to fundamental questions in seven particular areas of concern. These areas of concern include the six elements of every story-line, plus authority of the parties to act. Transaction due diligence requires that you determine, confirm and know the answers to each of the following:</p>
<ol class="wp-block-list">
<li> <em>Who</em> are the parties to the transaction?</li>
</ol>
<p>a. Seller</p>
<p>b. Buyer</p>
<p>c. Lender</p>
<p>d. Tenants</p>
<p>e. Other</p>
<p>2. <em>What property</em> is included?</p>
<p>a. Real estate</p>
<p>b. Personal property</p>
<p>c. Franchise agreements or rights</p>
<p>d. Other</p>
<p>3. <em>Where</em> is the property located?</p>
<p>4. <em>Why</em> is the property being acquired? – Intended use?</p>
<p>5. <em>When</em> must it Close? And other critical dates?</p>
<p>a. Due diligence period</p>
<p>b. Title delivery deadline</p>
<p>c. Survey delivery deadline</p>
<p>d. Financing deadlines</p>
<p>e. Section 1031 identification period and replacement property acquisition deadlines</p>
<p>f. Other critical dates</p>
<p>6. <em>How</em> will the transaction be structured?</p>
<p>a. Sale</p>
<p>b. Lease</p>
<p>c. Section 1031 exchange</p>
<p>d. Seller financing</p>
<p>e. Other transaction structure issues</p>
<p>7. <em>By what authority</em> are the parties acting?</p>
<p>a. Board approval, if necessary</p>
<p>b. Shareholder approval, if necessary</p>
<p>c. Governmental approvals, if necessary</p>
<p>d. Manager authority under LLC Operating Agreement</p>
<p>e. LLC member consent, if necessary</p>
<p>f. Landlord consent, if necessary</p>
<p>g. Lender consent, if necessary</p>
<p>h. Any other required consents or approvals or other sources of authority</p>
<p>When the “what” of Transaction Due Diligence is commercial or industrial real estate, the next step is to conduct an investigation of the property using all appropriate due diligence. Property due diligence is describes below.</p>
<h2 class="wp-block-heading"><span style="color: #000000;">PROPERTY DUE DILIGENCE</span></h2>
<div class="wp-block-image">
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<p>Property due diligence has four additional areas of concern. As discussed below, the four major areas of concern for property due diligence are <em>market demand, access, use</em> and<em> finances</em>. All of the questions concerning the property that need to be asked and answered when investing in, developing or financing commercial or industrial real estate fall within one or more of these four major areas of concern.</p>
<p>Property due diligence requires that you determine, confirm and know the answers to each of the following:</p>
<p> 1. <em>Market Demand</em></p>
<p>a. How will the property be used?</p>
<p>b. Who are the intended users?</p>
<p>c. Is there a need – and more importantly, will there be a need at the time the project is completed?</p>
<p>2. <em>Access</em></p>
<p>a. How will users get to the property?</p>
<p>b. Are there adequate traffic controls, stoplights, stop signs, etc.?</p>
<p>c. Adequate drives for customers and deliveries?</p>
<p>d. Sufficient roadway stacking room at nearby intersections?</p>
<p>e. Lawful curb-cuts?</p>
<p>f. Full access vs. right-turn only?</p>
<p>g. Adequate parking for business needs (which may be more than zoning requirements)?</p>
<p>h. ADA compliant/handicap accessible?</p>
<p>i. Any other access requirements or impediments?</p>
<p>3. <em>Use</em></p>
<p>a. Any private land use controls/restrictions on use?</p>
<p>b. Proper zoning?</p>
<p>c. Sufficient parking as required by zoning?</p>
<p>d. Sufficient occupancy capacity?</p>
<p>e. Adequate utility service?</p>
<p>f. If buyer is acquiring the property for its own use, are there any existing tenants or users that must be terminated or removed? Can they be lawfully removed?</p>
<p>g. Environmental issues? (which may be as much a finance issue as a use issue)</p>
<p>h. Other use requirements or issues?</p>
<p>4. <em>Finances</em></p>
<p>a. Financing</p>
<p>i. Appraised value?</p>
<p>ii. Loan to value – equity requirement?</p>
<p>iii. Terms of financing?</p>
<p>iv. Lender required due diligence expenses?</p>
<p>v. Lease subordination required?</p>
<p>x. Subordination Non-Disturbance and Attornment (SNDA) Agreements?</p>
<p>y. Tenant Estoppel Certificates?</p>
<p>vi. Other lender requirements?</p>
<p>b. Financial Metrics</p>
<p>i. Real estate taxes and special assessments?</p>
<p>ii. Rehab/repair costs?</p>
<p>iii. User fees and recapture costs?</p>
<p>iv. Environmental remediation costs?</p>
<p>v. Leases?</p>
<p>1. Lease income?</p>
<p>2. Security deposits?</p>
<p>3. Rental abatement?</p>
<p>4. CAM and operating expense reconciliations?</p>
<p>5. Landlord obligations to Tenants for build-out, etc.?</p>
<p>vi. Other financial benefits and burdens affecting the property?</p>
<h2 class="wp-block-heading">RESOURCES</h2>
<p>Many of the white papers and posts on this blog delve more deeply into due diligence issues and concerns. You may find particularly useful my post <a href="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/">Due Diligence Checklists: for Commercial Real Estate Transactions</a>.</p>
<p>Should you need assistance, we have a number of attorneys at <a href="http://www.rsplaw.com">Robbins Salomon & Patt, Ltd</a>. who are experienced commercial real estate practitioners and can help. Do not hesitate to reach out to us. We are always looking for new clients with interesting or challenging projects.</p>
<p>Enjoy!</p>
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<title>Keys to Closing A Commercial Real Estate Transaction</title>
<link>http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/</link>
<comments>http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Sat, 17 Oct 2015 12:10:09 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=202</guid>
<description><![CDATA[Commercial Real Estate Closings Anyone who thinks closing a commercial real estate transaction is a clean, easy, stress-free undertaking has never closed a commercial real estate transaction. Expect the unexpected, and be prepared to deal with it. I’ve been closing […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading">Commercial Real Estate Closings</h1>
<p>Anyone who thinks closing a commercial real estate transaction is a clean, easy, stress-free undertaking has never closed a commercial real estate transaction. Expect the unexpected, and be prepared to deal with it.</p>
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<p>I’ve been closing commercial real estate transactions for over 35 years. I grew up in the commercial real estate business.</p>
<p>My father was a “<em>land guy</em>”. He assembled land, put in infrastructure and sold it for a profit. His mantra:<em> “Buy by the acre, sell by the square foot.”</em> From an early age, he drilled into my head the need to <em>“be a deal maker; not a deal breaker.”</em> This was always coupled with the admonition: “<em>If the deal doesn’t close, no one is happy</em>.” His theory was that attorneys sometimes “<em>kill tough deals</em>” simply because they don’t want to be blamed if something goes wrong.</p>
<p>A key point to understand is that commercial real estate Closings do not “<em>just happen</em>”; they are made to happen. There is a time-proven method for successfully Closing commercial real estate transactions. That method requires adherence to the four KEYS TO CLOSING outlined below:</p>
<span id="more-202"></span>
<h1 class="has-text-align-center wp-block-heading">KEYS TO CLOSING</h1>
<h2 class="wp-block-heading">1. HAVE A PLAN:</h2>
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<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1822" data-permalink="http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/signingacontract-clientandbrokeragentleaseagreementsuccessful/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?fit=1000%2C668" data-orig-size="1000,668" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2023 Laddawan punna\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Signing,A,Contract.,Client,And,Broker,Agent,,Lease,Agreement,,Successful","orientation":"1"}" data-image-title="Signing,A,Contract.,Client,And,Broker,Agent,,Lease,Agreement,,Successful" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?fit=1000%2C668" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?resize=400%2C265" alt="client and broker agent, lease agreement" class="wp-image-1822" width="400" height="265" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?zoom=2&resize=400%2C265 800w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>This sounds obvious, but it is remarkable how many times no specific Plan for Closing is developed. It is not a sufficient Plan to merely say: “<em>I like a particular piece of property; I want to own it.</em>” That is not a Plan. That may be a goal, but that is not a Plan.</p>
<p>A Plan requires a clear and detailed vision of what, specifically, you want to accomplish, and how you intend to accomplish it. For instance, if the objective is to acquire a large warehouse/light manufacturing facility with the intent to convert it to a mixed use development with first floor retail, a multi-deck parking garage and upper level condominiums or apartments, the transaction Plan must include all steps necessary to get from where you are today to where you need to be to fulfill your objective. If the intent, instead, is to demolish the building and build a strip shopping center, the Plan will require a different approach. If the intent is to simply continue to use the facility for warehousing and light manufacturing, a Plan is still required, but it may be substantially less complex.</p>
<p>In each case, developing the transaction Plan should begin when the transaction is first conceived and should focus on the requirements for successfully Closing upon conditions that will achieve the Plan objective. The Plan must guide contract negotiations, so that the Purchase Agreement reflects the Plan and the steps necessary for Closing and post-Closing use. If Plan implementation requires particular zoning requirements, or creation of easements, or termination of party wall rights, or confirmation of structural elements of a building, or availability of utilities, or availability of municipal entitlements, or environmental remediation and regulatory clearance, or other identifiable requirements, the Plan and the Purchase Agreement must address those issues and include those requirements as conditions to Closing.</p>
<p>If it is unclear at the time of negotiating and entering into the Purchase Agreement whether all necessary conditions exists, the Plan must include a suitable period to conduct a focused and diligent investigation of all issues material to fulfilling the Plan. Not only must the Plan include a period for investigation, the investigation must actually take place with all due diligence.</p>
<p>NOTE: The term is “<em>Due Diligence</em>”; not “<em>do diligence</em>”. The amount of diligence required in conducting the investigation is the amount of diligence required under the circumstances of the transaction to answer in the affirmative all questions that must be answered “yes”, and to answer in the negative all questions that must be answered “no”. The transaction Plan will help focus attention on what these questions are. (<em>See</em>: <a title="DUE DILIGENCE CHECKLISTS for Commercial Real Estate Transactions" href="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/" target="_blank" rel="noopener">Due Diligence: Checklists for Commercial Real Estate Transactions</a>.)</p>
<h2 class="wp-block-heading"> 2. ASSESS AND UNDERSTAND THE ISSUES:</h2>
<p>Closely connected to the importance of having a Plan is the importance of understanding all significant issues that may arise in implementing the Plan. Some issues may represent obstacles, while others represent opportunities. One of the greatest causes of transaction failure is a lack of understanding of the issues or how to resolve them in a way that furthers the Plan.</p>
<p>Various risk shifting techniques are available and useful to address and mitigate transaction risks. Among them is title insurance with appropriate use of available commercial endorsements. In addressing potential risk shifting opportunities related to real estate title concerns, understanding the difference between a “real property law issue” vs. a “title insurance risk issue” is critical. Experienced commercial real estate counsel familiar with available commercial endorsements can often overcome what sometimes appear to be insurmountable title obstacles through creative draftsmanship and the assistance of a knowledgeable title underwriter.</p>
<p>Beyond title issues, there are numerous other transaction issues likely to arise as a commercial real estate transaction proceeds toward Closing. With commercial real estate, negotiations seldom end with execution of the Purchase Agreement.</p>
<p>New and unexpected issues often arise on the path toward Closing that require creative problem-solving and further negotiation. Sometimes these issues arise as a result of facts learned during the buyer’s due diligence investigation. Other times they arise because independent third-parties necessary to the transaction have interests adverse to, or at least different from, the interests of the seller, buyer or buyer’s</p>
<p>lender. When obstacles arise, tailor-made solutions are often required to accommodate the needs of all concerned parties so the transaction can proceed to Closing. To appropriately tailor a solution, you have to understand the issue and its impact on the legitimate needs of those affected.</p>
<h2 class="wp-block-heading">3. RECOGNIZE AND OVERCOME THIRD PARTY INERTIA:</h2>
<p>A major source of frustration, delay and, sometimes, failure of commercial real estate transactions results from what I refer to as “<em>third-party inertia</em>”. Recognize that the Closing deadlines important to transaction participants are often meaningless to unrelated third parties whose participation and cooperation is vital to moving the transaction forward. Chief among third-party dawdlers are governmental agencies, but the culprit may be any third-party vendor or other third-party not controlled by the buyer or seller. For them, the transaction is often “just another file” on their already cluttered desk.</p>
<p>Experienced commercial real estate counsel is often in the best position to recognize inordinate delay by third parties and can often cajole recalcitrant third parties into action with an appropriately timed telephone call. Often, experienced commercial real estate counsel will have developed relationships with necessary vendors and third parties through prior transactions, and can use those established relationships to expedite the transaction at hand. Most importantly, however, experienced commercial real estate counsel is able to recognize when undue delay is occurring and push for a timely response when appropriate. Third party vendors are human (they claim) and typically respond to timely appeals for action. It is the old cliché at work: “<em>The squeaky wheel gets the oil</em>”. Care must be taken, however, to tactfully apply pressure only when necessary and appropriate. Repeated requests or demands for action when inappropriate to the circumstance runs the risk of alienating a necessary party and adding to delay instead of eliminating it. Once again, human nature at work. Experienced commercial real estate counsel will often understand when to apply pressure and when to lay off.</p>
<h2 class="wp-block-heading">4. PREPARE FOR THE CLOSING FRENZY:</h2>
<p>Like it or not, controlled chaos leading up to Closing is the norm rather than the exception for commercial real estate transactions. It occurs because of the necessity of relying on independent third parties, the necessity of providing certifications and showings dated in close proximity to Closing, and because new issues often arise at or near Closing as a consequence of facts and information discovered through the continual exercise of due diligence on the path toward Closing.</p>
<p>Whether dealing with third-party lessees, lenders, appraisers, local planning, zoning or taxing authorities, public or quasi-public utilities, project surveyors, environmental consultants, title insurance companies, adjoining property owners, insurance companies, structural engineers, state or local departments of transportation, or other necessary third-party vendors or participants, it will often be the case that you must wait for them to react within their own time-frame to enable the Closing to proceed. The transaction is seldom as important to them as it is to the buyer and seller.</p>
<p>To the casual observer, building-in additional lead-time to allow for stragglers and dawdlers to act may seem to be an appropriate solution. The practical reality, however, is that many tasks must be completed within a narrow window of time just prior to Closing.</p>
<p>As much as one may wish to eliminate the last-minute rush in the days just before Closing, in many instances it is just not possible. Many documents and “<em>showings</em>”, such as UCC searches, surveys, water department certifications, governmental notices, appraisals, property inspection reports, environmental site assessments, estoppel certificates, rent rolls, certificates of authority, and the like, must be dated near in time to the Closing, often within a few days or weeks of Closing. If prepared and dated too far in advance, they become stale and meaningless and must be redone, resulting in additional time and expense. The reality is that commercial real estate Closings often involve big dollar amounts and evolving circumstances. Rather than complain and stress-out over the hectic pace of coordinating all Closing requirements and conditions as Closing approaches, you are wise to anticipate the fast paced frenzy leading up to Closing and should be prepared for it.</p>
<p>As Closing approaches, commercial real estate counsel, real estate brokers and necessary representatives of the buyer and seller should remain available and ready to respond to changing demands and circumstances. This is not a time to go on vacation or to be on an out-of-town business trip. It is a time to remain focused and ready for action. Recognizing that pre-Closing frenzy is the norm rather than an exception for commercial real estate transactions may help ease tension among the parties and their respective counsel and pave the way for a successful Closing.</p>
<p>Like it or not, this is the way it is. Prepare for the Closing frenzy and be available to respond. This is the way it works. Anyone who tells you differently is either lying to you or has had little experience in Closing commercial real estate transactions.</p>
<p class="has-text-align-center">****</p>
<p> So there you have it. The four <strong>KEYS TO CLOSING</strong> a commercial real estate transaction.</p>
<h2 class="wp-block-heading"> 1. <span style="text-decoration: underline;">H</span>AVE A PLAN</h2>
<h2 class="wp-block-heading"> 2. <span style="text-decoration: underline;">A</span>SSESS AND UNDERSTAND THE ISSUES</h2>
<h2 class="wp-block-heading"> 3. <span style="text-decoration: underline;">R</span>ECOGNIZE AND OVERCOME THIRD PARTY INERTIA</h2>
<h2 class="wp-block-heading"> 4. <span style="text-decoration: underline;">P</span>REPARE FOR THE CLOSING FRENZY</h2>
<p>Apply these Keys to Closing, and your chance of success goes up. Ignore these Keys to Closing, and your transaction may drift into oblivion.</p>
<p><em>Thanks for listening,</em></p>
<p><em> Kymn</em></p>
<p> </p>
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<title>Illinois Commercial Condominiums – The Inactive Association Challenge</title>
<link>http://harp-onthis.com/illinois-commercial-condominiums-the-inactive-association-challenge/</link>
<comments>http://harp-onthis.com/illinois-commercial-condominiums-the-inactive-association-challenge/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 10 Aug 2015 15:30:41 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Condominiums]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial condominium associations]]></category>
<category><![CDATA[commercial condominiums]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[Illinois condos]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1197</guid>
<description><![CDATA[RESALE DISCLOSURE CHALLENGES – When the Commercial Condominium Association is “Inactive” Remarkably, perhaps as an aftermath of the Great Recession during which resales of commercial condominiums were infrequent, it is not rare to find that the owners association for a […]]]></description>
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<h2 class="wp-block-heading"><strong><span style="color: #21b6db;">RESALE DISCLOSURE CHALLENGES – When the Commercial Condominium Association is “Inactive”</span></strong></h2>
<ul class="wp-block-list">
<li>Section 18.3 of the Illinois Condominium Property Act provides that a unit owners’ association will be responsible for the overall administration of the property through its duly elected board of managers. 765 ILCS 605/18.3.</li>
<li>Section 19 of the Illinois Condominium Property Act sets forth a specific set of records that the board of managers of every association is required to maintain. 765 ILCS 605/19.</li>
<li>Section 22.1 of the Illinois Condominium Property Act provides that “in the event of any resale of a condominium unit by a unit owner other than the developer such owner shall obtain from the board of managers and shall make available for inspection to the prospective purchaser, upon demand . . .” a fairly comprehensive list of condominium instruments, and other documents and information, concerning the makeup and financial condition of the owners association, insurance coverage, litigation, reserves, assessments, and the like. 765 ILCS 605/22.1.</li>
</ul>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" class="wp-image-1041" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>Remarkably, perhaps as an aftermath of the <em>Great Recession</em> during which resales of commercial condominiums were infrequent, it is not rare to find that the owners association for a commercial condominium has become inactive or only slightly active. Record keeping and budgeting may have become ‘streamlined”, addressing little more than collecting minimal assessments to pay insurance premiums on common elements. The owner’s association may have no formal budget, no capital reserves, extreme deferred maintenance, scant, if any, record of meetings of the board of managers, and no centralized or organized record keeping system beyond a box in a filing cabinet in the back-office of one of the unit owners.</p>
<p>Because of the infrequency of unit transfers in recent years, and the possible inexperience of a record-keeper who may have gotten the record-keeping job by default – when the last remaining board member left following foreclosure of his or her unit during the <em>Great Recession</em> – obtaining and providing the resale disclosure documents and information required by §22.1 can be a challenge.</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1825" data-permalink="http://harp-onthis.com/illinois-commercial-condominiums-the-inactive-association-challenge/realestateagentandhousemodel/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?fit=1000%2C662" data-orig-size="1000,662" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2017 bannosuke\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Real,Estate,Agent,And,House,Model","orientation":"0"}" data-image-title="Real,Estate,Agent,And,House,Model" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?fit=1000%2C662" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?resize=400%2C264" alt="real estate agent and house model" class="wp-image-1825" width="400" height="264" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?resize=768%2C508 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>This challenge presents practical problems for the unit seller, unit buyer and the unit buyer’s proposed mortgagee when attempting to resell a commercial condominium unit. Not the least of these problems is delay and frustration in moving toward closing – which may ultimately sour a prospective buyer and its lender, and lead the buyer to back away from acquiring the unit at all.</p>
<p>Deferred maintenance of common elements affecting any unit in the condominium association could have an adverse financial impact on all unit owners. For example, if a commercial or industrial condominium association is comprised of multiple commercial/industrial buildings, a required roof replacement, foundation repair, or other structural repair for any of the buildings, or a recognized environmental condition in the common areas, could be expensive, with the cost shared among all unit owners. Accordingly, when investigating the condition of a commercial/industrial condominium unit being considered for acquisition, due diligence may require having all common elements in the association inspected, rather than merely looking at the unit being considered for acquisition. This may be more expensive and may take more time than might ordinarily be expected when purchasing a stand-alone building that is not a condominium unit.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p><strong>PRACTICE TIP</strong></p>
<p>Consider when drafting a purchase agreement under these circumstances, who should bear the cost of inspecting all common elements in the association? Ordinarily the cost of “due diligence” is a buyer’s expense. But if extraordinary inspections of association common elements beyond the specific unit being acquired is required in the exercise of due diligence because the selling unit owner did not demand that the owners’ association be operated by a board of managers in compliance with the Illinois Condominium Property Act, should the buyer bear this extraordinary expense, or should the seller?</p>
</blockquote>
<p>There is no easy solution for this challenge, especially for a buyer planning to purchase a unit in one of these inactive associations. The best advice may be to become proactive – whether as an existing unit owner or upon becoming a new unit owner, to reactivate and invigorate the owners’ association and its board of managers, and to take steps to run the owners association in a businesslike manner, in compliance with the Illinois Condominium Property Act.</p>
<p>Generally speaking, owners of commercial condominiums are business people. They should demand that the association be run like they would run any business or investment property they invest in, if they expect to be successful.</p>
<p>If you have a viable solution to this challenge, please comment with your insights and practical suggestions.</p>
<p>Thank you in advance for participating in this discussion.</p>
<p>Kymn</p>
]]></content:encoded>
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<title>DUE DILIGENCE CHECKLISTS for Commercial Real Estate Transactions</title>
<link>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/</link>
<comments>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 26 Mar 2015 00:06:49 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
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<description><![CDATA[ 2016 Updat Are you planning to purchase, finance, develop or redevelop any of the following types of commercial real estate in the USA? A KEY element of successfully investing in commercial real estate is performing an adequate Due Diligence Investigation […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignright"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<h6 class="wp-block-heading"> <span style="color: #199ca8;">2016 Updat</span></h6>
<h2 class="wp-block-heading"><span style="color: #098f9c;">Are you planning to purchase, finance, develop or redevelop any of the following types of commercial real estate in the USA?</span></h2>
<ul class="wp-block-list">
<li>Shopping Center</li>
<li>Office building</li>
<li>Large Multifamily/Apartments/Condominium Project</li>
<li>Sports and/or Entertainment Venue</li>
<li>Mixed-Use Commercial-Residential-Office</li>
<li>Parking Lot/Parking Garage</li>
<li>Retail Store</li>
<li>Lifestyle or Enclosed Mall</li>
<li>Restaurant/Banquet Facility</li>
<li>Intermodal logistics/distribution facility</li>
<li>Medical Building</li>
<li>Gas Station</li>
<li>Manufacturing facility</li>
<li>Pharmacy</li>
<li>Special Use facility</li>
<li>Air Rights parcel</li>
<li>Subterranean parcel</li>
<li>Infrastructure improvements</li>
<li>Other commercial (non-single family, non-farm) property</li>
</ul>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" class="wp-image-1041" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>A KEY element of successfully investing in commercial real estate is performing an adequate Due Diligence Investigation prior to becoming legally bound to acquire or finance the property. Conducting a Due Diligence Investigation is important not just to enable you to walk away from the transaction, if necessary, but even more importantly to enable you to discover obstacles and opportunities presented by the property that can be addressed prior to closing, to enable the transaction to proceed in a manner most beneficial to your overall objective. An adequate Due Diligence Investigation will assure awareness of all material facts relevant to the intended use or disposition of the property after closing. This is a critical point. The ultimate objective is not just to get to Closing – but rather to confirm that the property can be used or developed as intended <em>after</em> Closing.</p>
<p>The following checklists – while not all-inclusive – will help you conduct a focused and meaningful Due Diligence Investigation.</p>
<span id="more-1095"></span>
<h2 class="wp-block-heading"><span style="color: #199ca8;">BASIC DUE DILIGENCE CONCEPTS</span></h2>
<p><em>Caveat Emptor</em>: Let the Buyer beware.</p>
<p>Consumer protection laws applicable to home purchases and other consumer transactions seldom apply to commercial real estate transactions. The rule that a Buyer must examine, judge, and test for himself, applies to the purchase of all commercial real estate in the USA.</p>
<p><em>Due Diligence</em>: <span style="text-decoration: underline;">Black’s Law Dictionary</span>, West Publishing Company defines Due Diligence as follows:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>Such measure of prudence, activity, or assiduity, as is proper to be expected from, and ordinarily exercised by a prudent (person) under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the specific case.</p>
</blockquote>
<p>Contract representations and warranties are <em>NOT</em> an adequate substitute for Due Diligence. A breach of a representation or warranty will simply mean you have the right to sue – which is time consuming and expensive.</p>
<p>The point of commercial real estate due diligence is to avoid transaction surprises and confirm that the property can be used and function as intended.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="199" data-attachment-id="614" data-permalink="http://harp-onthis.com/perfect-seller/questions-and-answers-signpost/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1699%2C1130" data-orig-size="1699,1130" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"Concept image of the six most common questions and answers on a signpost.","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"Questions and Answers signpost"}" data-image-title="Questions and Answers signpost" data-image-description="<p>Concept image of the six most common questions and answers on a signpost.</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1024%2C681" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199" alt="Questions and Answers signpost" class="wp-image-614" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=1024%2C681 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=451%2C300 451w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?w=1699 1699w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>Basic transaction due diligence will focus on the fundamental elements of any storyline: Who, What, Where, When, Why and How. These are key elements of inquiry that must be answered for any transaction, whether or not the transaction involves commercial real estate as its principal focus.</p>
<p>Property due diligence for commercial real estate will focus on four (4) primary areas of concern:</p>
<ul class="wp-block-list">
<li>Market Demand</li>
<li>Access</li>
<li>Uses</li>
<li>Finances</li>
</ul>
<p>For a detailed discussion of the four primary areas of concern, see my article: <a title="Commercial Real Estate Due Diligence – Do You Know the Four Areas of Inquiry?" href="http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/" target="_blank" rel="noopener">Commercial Real Estate Due Diligence: Do You Know the Four Areas of Inquiry?</a></p>
<p>Before focusing on the four areas of concern for property due diligence, transaction due diligence requires that we consider for whom the Due Diligence Investigation is being conducted. The scope, intensity, and focus of any Due Diligence Investigation of commercial real estate will depend upon the objectives of the party for whom the investigation is being conducted. These objectives may vary depending upon whether the investigation is being conducted for the benefit of: (i) a Strategic Buyer (or long-term lessee); (ii) a Financial Buyer; (iii) a Developer (whether ground-up development, or redevelopment for adaptive reuse); or (iv) a Lender.</p>
<p>If you are a Seller, understand that to Close the transaction, your Buyer and its Lender must address all issues material to their respective objectives – some of which require information only you, as Owner, can adequately provide. If you are a Seller, please see my article: <a title="PERFECT SELLER – Selling Commercial Real Estate" href="http://harp-onthis.com/perfect-seller/" target="_blank" rel="noopener">Perfect Seller</a> for guidance.</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">GENERAL DUE DILIGENCE OBJECTIVES</span></h3>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1833" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="due-diligence-word-on-wooden-cube-isolated-on-orange-background-1" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?resize=400%2C267" alt="due diligence word on wooden cube isolated on orange background" class="wp-image-1833" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p><span style="color: #000000;">(i) A <em>Strategic Buyer </em></span>(or long-term lessee) is acquiring the property for its own use, and must verify that the property is suitable for the intended use.</p>
<p>(ii) A <em>Financial Buyer</em> is acquiring the property for the expected return on investment generated by the property’s anticipated revenue stream, and must determine the amount, velocity, and durability of the revenue stream. This will likely include a consideration of credit-worthiness and market demand of long-term tenants, lease rental rates at the property compared to lease rental rates for comparable properties in the marketplace which may impact lease renewal rates, lease duration and expiration dates of all property leases to gauge exposure to mass-vacancies, tenant co-occupancy requirements and other factors that may impact the durability of the revenue stream generated by the property. A sophisticated Financial Buyer will likely calculate its yield based upon discounted cash-flows rather than the much less precise capitalization rate (“cap rate”), and will need adequate financial information to do so.</p>
<p>(iii) A <em>Developer</em> is seeking to add value by changing the character or use of the property – usually with a short-term to intermediate-term exit strategy to dispose of the property; although a Developer might plan to hold the property long-term as a Financial Buyer after development or redevelopment. The Developer must focus upon whether the planned change in character or use can be accomplished in a cost-effective manner.</p>
<p>(iv) A <em>Lender</em> is seeking to establish two basic lender criteria:</p>
<p> 1. <em>Ability to Repay</em> – The ability of the property to generate sufficient revenue to repay the loan an a timely basis; <em>and</em></p>
<p>2. <em>Sufficiency of Collateral</em> – The objective disposal value of the collateral in the event of a loan default, to assure adequate funds to repay the loan, carrying costs and costs of collection in the event forced collection becomes necessary. Particularly in light of the collapse of the commercial real estate market during the <em>Great Recession</em> of recent years, a Lender may pay particular attention to the overall loan coverage ratio, sources of equity, debt coverage ratio, and, similar to a Financial Buyer, may be concerned with the credit-worthiness and market demand of long-term tenants, lease rental rates at the property compared to lease rental rates for comparable properties in the marketplace which may impact lease renewal rates, lease duration and expiration dates of all property leases to gauge exposure to mass-vacancies, tenant co-occupancy requirements and other factors that may impact future value of the collateral.</p>
<p>The amount of diligent inquiry due to be expended (i.e.<em> due diligence</em>) to investigate any particular commercial real estate project is the amount of inquiry required to answer in the affirmative each question that must be answered yes, and to answer in the negative each question that must be answered no, to address all material concerns of the party for whom the Due Diligence Investigation is being undertaken.</p>
<p>The following Due Diligence Checklists are offered as helpful guides to assist in focusing on important issues to be considered in connection with a commercial real estate transaction.</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">I. THE PROPERTY</span></h3>
<p><span style="color: #000000;">1. Exactly what PROPERTY does the Purchaser believe it is acquiring?</span></p>
<ul class="wp-block-list">
<li>Land?</li>
<li>Building?</li>
<li>Fixtures?</li>
<li>Other Improvements?</li>
<li>Other Rights?</li>
<li>The entire fee title interest including all air rights?</li>
<li>All development rights?</li>
</ul>
<p>2. What is Purchaser’s planned use of the Property?</p>
<p>3. Does the physical condition of the Property permit use as planned?</p>
<ul class="wp-block-list">
<li>Commercially adequate access to public streets and ways?</li>
<li>Sufficient parking?</li>
<li>Structural condition of improvements?</li>
<li>Wi-fi ready with access to high speed internet?</li>
<li>Environmental contamination?
<ul class="wp-block-list">
<li>Innocent Purchaser defense vs. exemption from liability</li>
<li>All Appropriate Inquiry</li>
</ul>
</li>
</ul>
<p>4. Is there any legal restriction to Purchaser’s use of the Property as planned?</p>
<ul class="wp-block-list">
<li>Zoning?</li>
<li>Private land use controls?</li>
<li>Americans with Disabilities Act?</li>
<li>Availability of Licenses?
<ul class="wp-block-list">
<li>Liquor license?</li>
<li>Entertainment license?</li>
<li>Outdoor dining license?</li>
</ul>
</li>
<li> Drive through windows permitted?</li>
<li>Other legal restrictions or impediments?</li>
</ul>
<p>5. How much does Purchaser expect to pay for the Property?</p>
<p>6. Is there any condition on or within the Property that is likely to increase Purchaser’s effective cost to acquire or use the Property?</p>
<ul class="wp-block-list">
<li>Property owner’s assessments?</li>
<li> Real estate tax in line with value?</li>
<li>Special Assessment?</li>
<li>Required user fees for necessary amenities?</li>
<li>Drainage?</li>
<li>Access?</li>
<li>Parking?</li>
<li>Other?</li>
</ul>
<p>7. Any encroachments onto the Property, or from the Property onto other lands?</p>
<p>8. Are there any encumbrances on the Property that will not be cleared at Closing?</p>
<ul class="wp-block-list">
<li>Easements?</li>
<li>Covenants running with the land?</li>
<li>Liens or other financial servitude?</li>
<li>Leases?</li>
</ul>
<p>9. If the Property is subject to any Leases, are there any?</p>
<ul class="wp-block-list">
<li>Security Deposits?</li>
<li>Options to Extend Term?</li>
<li>Options to Purchase?</li>
<li>Rights of First Refusal?</li>
<li>Rights of First Offer?</li>
<li>Rights of Early Termination?</li>
<li>Maintenance obligations?</li>
<li>Duty of Landlord to provide utilities?</li>
<li>Real estate tax or CAM escrows?</li>
<li>Delinquent rent?</li>
<li>Prepaid rent?</li>
<li>Tenant mix/use controls?</li>
<li>Tenant co-occupancy covenants?</li>
<li>Tenant exclusives?</li>
<li>Tenant Parking requirements?</li>
<li><a title="Commercial Landlord-Tenant Issues – PART 1 – Getting it Right" href="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/" target="_blank" rel="noopener">Leasehold easements?</a></li>
<li><a title="COMMERCIAL LANDLORD-TENANT – Part 2 – The Covenant of Quiet Enjoyment" href="http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/" target="_blank" rel="noopener">Strict covenants of quiet enjoyment?</a></li>
<li>Automatic subordination of Lease to future mortgages?</li>
<li>Other material Lease terms?</li>
</ul>
<p>10. New Construction?</p>
<ul class="wp-block-list">
<li>Availability of construction permits?</li>
<li>Site plan approvals?</li>
<li>Soil conditions?</li>
<li>Utilities?</li>
<li>Curb cuts?</li>
<li>Traffic control requirements?</li>
<li>NPDES (National Pollutant Discharge Elimination System) Permit?
<ul class="wp-block-list">
<li>Storm Water Pollution Prevention Plan required?</li>
</ul>
</li>
<li>Other governmental approvals required?</li>
</ul>
<h3 class="wp-block-heading"><span style="color: #199ca8;">II. THE SELLER</span></h3>
<p><span style="color: #000000;">1. Who is the Seller?</span></p>
<ul class="wp-block-list">
<li>Individual?</li>
<li>Trust?</li>
<li>Partnership?</li>
<li>Corporation?</li>
<li>Limited liability company?</li>
<li>Other legally existing entity?</li>
</ul>
<p>2. If other than a natural person, does the Seller validly exist and is Seller in good standing?</p>
<p>3. Does the Seller own the Property?</p>
<p>4. Does the Seller have authority to convey the Property?</p>
<ul class="wp-block-list">
<li>Board of Director approval?</li>
<li>Shareholder or Member approval?</li>
<li>Other consents?</li>
<li>If foreign individual or entity, are any special requirements applicable?
<ul class="wp-block-list">
<li>Qualification to do business in jurisdiction of Property?</li>
<li>Federal tax withholding?</li>
<li>U.S. Patriot Act compliance?</li>
<li>Bank Secrecy Act/Anti-Money Laundering Compliance?</li>
</ul>
</li>
</ul>
<p>5. Who has authority to bind the Seller?</p>
<p>6. Are sale proceeds sufficient to pay off all liens?</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;"> III. THE PURCHASER</span></h3>
<p><span style="color: #000000;">1. Who is the Purchaser?</span></p>
<p>2. What is the Purchaser/Grantee’s exact legal name?</p>
<p>3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?</p>
<ul class="wp-block-list">
<li>Articles of Incorporation – Articles of Organization or Formation?</li>
<li>Certificate of Good Standing?</li>
</ul>
<p>4. Is the Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property?</p>
<ul class="wp-block-list">
<li>Board of Director approvals?</li>
<li>Shareholder or Member approvals?</li>
<li>If foreign individual or entity, are any special requirements applicable?
<ul class="wp-block-list">
<li>Qualification to do business in jurisdiction of the Property?</li>
<li>U.S. Patriot Act compliance?</li>
<li>Bank Secrecy Act/Anti-Money Laundering compliance?</li>
</ul>
</li>
</ul>
<p>5. Who is authorized to bind the Purchaser/Grantee?</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">IV. TRANSACTION STRUCTURE</span></h3>
<p><span style="color: #000000;">1. Is transaction a cash purchase?</span></p>
<p>2. Purchase with lender financing?</p>
<ul class="wp-block-list">
<li>Bank financing?</li>
<li>Insurance company financing?</li>
<li>Hard money loan?</li>
<li>Seller financing?
<ul class="wp-block-list">
<li>Installment Agreement for Deed?</li>
<li>Seller provided mortgage?</li>
</ul>
</li>
</ul>
<p>3. <a title="Keys Rules For Section 1031 Exchanges" href="http://harp-onthis.com/keys-rules-section-1031-exchanges/" target="_blank" rel="noopener">Tax-deferred exchange pursuant to Section 1031 </a>of the Internal Revenue Code?</p>
<ul class="wp-block-list">
<li>Replacement property identified?</li>
<li>Qualified Intermediary selected?</li>
<li>Key time periods determined to comply with Section 1031 exchange rules?</li>
<li>Reverse exchange?</li>
<li>Other Section 1031 compliance issues?</li>
</ul>
<p>4. <a title="10 Things to Know About Commercial Real Estate Development Agreements" href="http://harp-onthis.com/10-things-know-commercial-real-estate-development-agreements/">Public-Private Partnerships</a> with municipal or other governmental economic incentives?</p>
<ul class="wp-block-list">
<li>Tax increment financing?</li>
<li>Sales tax revenue sharing?</li>
<li>Business district financing?</li>
<li>Special service area financing?</li>
<li>Municipal General Obligation loan?</li>
</ul>
<p>5. Third-party Source Payments?</p>
<ul class="wp-block-list">
<li>Naming rights agreements?</li>
<li>Sponsorships?</li>
<li>Concession agreements?</li>
</ul>
<h3 class="wp-block-heading"><span style="color: #199ca8;">V. PURCHASER FINANCING</span></h3>
<h4 class="wp-block-heading"><span style="color: #199ca8;">A. BUSINESS TERMS OF THE LOAN</span></h4>
<p><span style="color: #000000;">1. What loan terms have the Borrower and its Lender agreed to?</span></p>
<ul class="wp-block-list">
<li>What is the amount of the loan?</li>
<li>What is the interest rate?</li>
<li>What are the repayment terms?</li>
<li>What is the collateral?
<ul class="wp-block-list">
<li>Commercial real estate only?</li>
<li>Real estate and personal property together?</li>
<li>First lien?</li>
<li>Junior lien?</li>
</ul>
</li>
<li>Is it a single advance loan?</li>
<li>A multiple advance loan?</li>
<li>A construction loan?</li>
<li>If it is a multiple advance loan, can the principal be re-borrowed once repaid prior to maturity of the loan; making it, in effect, a revolving line of credit?</li>
<li>Are there reserve requirements?
<ul class="wp-block-list">
<li>Interest reserves?</li>
<li>Repair reserves?</li>
<li>Real estate tax reserves?</li>
<li>Insurance reserves?</li>
<li>Environmental remediation reserves?</li>
<li>Other reserves?</li>
</ul>
</li>
</ul>
<p>2. Are there requirements for Borrower to open business operating accounts with the Lender? If so, is the Borrower obligated to maintain minimum compensating balances?</p>
<p>3. Is the Borrower required to pledge business accounts as additional collateral?</p>
<p>4. Are there early repayment fees or yield maintenance requirements (each sometimes referred to as “prepayment penalties”)?</p>
<p>5. Are there repayment blackout periods during which the Borrower is not permitted to repay the loan?</p>
<p>6. Is a profit participation payment to Lender required upon disposition?</p>
<p>7. Is there a Loan Commitment fee or “good faith deposit” due upon Borrower’s acceptance of the Loan Commitment?</p>
<p>8. Is there a loan funding fee or loan brokerage fee or other loan fee due Lender or a loan broker at Closing?</p>
<p>9. Is there a Exit Fee due to Lender upon the loan being paid off?</p>
<p>10. What are the Borrower’s expense reimbursement obligations to Lender? When are they due? What is the Borrower’s obligation to pay the Lender’s expenses if the loan does not close?</p>
<h4 class="wp-block-heading"><span style="color: #199ca8;">B. DOCUMENTING THE COMMERCIAL REAL ESTATE LOAN</span></h4>
<p>Does the Purchaser/Borrower have all information necessary to comply with the Lender’s loan closing requirements?</p>
<p>Not all loan documentation requirements may be known at the outset of a transaction, although most commercial real estate loan documentation requirements are fairly typical. Some required information can be obtained only from the Seller. Production of that information to Purchaser for delivery to its lender must be required in the purchase contract.</p>
<p>As guidance to what a commercial real estate lender may require, the following sets forth a fairly typical Closing Checklist for a loan secured by commercial real estate.</p>
<h5 class="wp-block-heading"><span style="color: #199ca8;">COMMERCIAL REAL ESTATE LOAN CLOSING CHECKLIST</span></h5>
<p><span style="color: #000000;">1. Promissory Note</span></p>
<p>2. Personal Guaranties (which may be full, partial, secured, unsecured, payment guaranties, collection guaranties, so-called “<em>bad boy</em>” guaranties, or a variety of other types of guaranties as may be required by Lender)</p>
<p>3. Loan Agreement (often incorporated into the Promissory Note and/or Mortgage in lieu of being a separate document)</p>
<p>4. Mortgage (sometimes expanded to be a Mortgage, Security Agreement and Fixture Filing)</p>
<p>5. Assignment of Rents</p>
<p>6. Security Agreement</p>
<p>7. Financing Statement</p>
<p>8. Evidence of Borrower’s Existence in Good Standing, including:</p>
<ul class="wp-block-list">
<li>Certified copy of organizational documents of borrowing entity (including Articles of Incorporation, if Borrower is a corporation; Articles of Organization (or in Delaware, Articles of Formation) and a written Operating Agreement, if Borrower is a limited liability company; certified copy of trust agreement with all amendments, if Borrower is a land trust or other trust; etc.)</li>
<li>Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if a limited partnership) or Certificate of Qualification to Transact Business (if Borrower is an entity doing business in a State other than its State of formation)</li>
</ul>
<p>9. Evidence of Borrower’s Authority to Borrow, including:</p>
<ul class="wp-block-list">
<li>Borrower’s Certificate</li>
<li>Certified resolutions</li>
<li>Incumbency Certificate</li>
</ul>
<p>10. Satisfactory Commitment for Title Insurance (which will typically require, for analysis by the Lender, copies of all documents or record appearing on Schedule B of the title commitment which are to remain after Closing), with required commercial title insurance endorsements, often including:</p>
<ul class="wp-block-list">
<li>ALTA 3.1 Zoning Endorsement modified to include parking (although, if the Property is a multi-user property, such as a retail shopping center, an ALTA 3.0 Zoning endorsement may be appropriate)</li>
<li>ALTA Comprehensive Endorsement No. 1</li>
<li>Location Endorsement (street address)</li>
<li>Access Endorsement (insuring commercially reasonable vehicular and pedestrian access to public streets and ways)</li>
<li>Contiguity Endorsement (the insured land comprises as single parcel with no gaps or gores)</li>
<li>PIN Endorsement (insuring that he identified real estate tax permanent index numbers (PIN) are the only applicable PIN numbers affecting the collateral, and that they relate solely to the real property comprising the collateral)</li>
<li>Usury Endorsement (insuring that the loan does not violate prohibitions against excessive interest charges)</li>
<li>other title insurance endorsements applicable to protect the intended use and value of the real estate collateral, as may be determined upon review of the Commitment for Title Insurance, Survey and documents of record, or arising from the existence of special issues pertaining to the transaction or the Borrower</li>
</ul>
<p>11. Current ALTA/NSPS Land Title Survey (3 sets), prepared in accordance with the 2016 (or current) Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, with such Table A Additional Requirements as the Lender may determine necessary.</p>
<p>12. Current certified Rent Roll</p>
<p>13. Certified copy of all Leases (4 sets – 1 each for Buyer, Buyer’s attorney, Title Company, and Lender)</p>
<p>14. Lessee Estoppel Certificates</p>
<p>15. Lessee Subordination, Non-Disturbance and Attornment Agreements (sometimes referred to simply as “SNDAs”)</p>
<p>16. UCC, Judgment, Pending Litigation, Bankruptcy and Tax Lien Search Report</p>
<p>17. Appraisal – complying with Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended)</p>
<p>18. Environmental Site Assessment Report (sometimes referred to as Environmental Phase I and/or Phase 2 Audit Report) prepared in accordance with ASTM Standard e1527-13 (or current)</p>
<p>19. Environmental Indemnity Agreement (signed by Borrower and Guarantors)</p>
<p>20. Site Improvements Assessment Report (sometimes an ASTM Property Condition Assessment prepared in accordance with ASTM Standard e2018-08 (or current) is required)</p>
<p>21. Evidence of Hazard Insurance naming Lender as the Mortgagee/Lender Loss Payee; and Liability Insurance naming Lender as an “<em>additional insured</em>” (sometimes listed simply as “Acord 27” and “Acord 25”, respectively); and sometimes a separate “Agreement to Provide Insurance”</p>
<p>22. Legal Opinion of Borrower’s Counsel</p>
<p>23. Credit Underwriting documents, such as signed tax returns, property operating statements, etc. as may be specified by the Lender</p>
<p>24. Compliance Agreement (sometimes also called an Errors and Omissions Agreement), whereby the Borrower agrees to correct, after Closing, errors or omissions in the loan documentation</p>
<p class="has-text-align-center"><strong><span style="color: #199ca8;">*****</span></strong></p>
<p>It is useful to become familiar with the Lender’s loan documentation requirements as early in the transaction as practical. The requirements will likely be set forth in some detail in the Lender’s Loan Commitment – which is the contract that serves as the road map for the loan transaction between Borrower and Lender. In Illinois, to be binding, the Loan Commitment must be in writing and be signed by the Lender.</p>
<p>Conducting the Due Diligence Investigation (that is to say, investigating all property and transactional concerns material to the commercial real estate transaction with all diligence due under the circumstances) can be time consuming and expensive. It can be made less so by knowing what to look for, devising a due diligence plan, and focusing on those matters that are of material concern.</p>
<p>If the loan requirements cannot be satisfied, it is better to make that determination during the contractual “<em>due diligence period</em>” – which typically provides for a so-called “<em>free out</em>” when the Borrower/Purchaser can receive the return of part or all of its earnest money deposit and avoid full liability under the purchase agreement for failure to move forward – rather than at a later date when the earnest money may be at risk of forfeiture or when other liability for failure to Close may attach.</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">CONCLUSION</span></h3>
<p>Conducting an effective Due Diligence Investigation in a commercial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance. Doing so will help identify risks which may be present in any commercial transaction, so the risks can be adequately shifted or otherwise mitigated. A properly focused investigation conducted with appropriate due diligence may disclose previously unrecognized opportunities as well as potential problems. An appropriate Due Diligence Investigation requires intentional and focused attention to all details material to the Property and to the transaction by a skilled professional, or group of professionals, who can recognize significant issues and opportunities. An investigation that is not properly focused may miss critical issues and may be overly broad and excessively expensive.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" class="wp-image-1041" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>Recommendation: Exercise Due Diligence.</p>
<p>We are here to help.</p>
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<post-id xmlns="com-wordpress:feed-additions:1">1095</post-id> </item>
<item>
<title>COMMERCIAL LANDLORD-TENANT – Part 2 – The Covenant of Quiet Enjoyment</title>
<link>http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/</link>
<comments>http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 23 Mar 2015 11:00:24 +0000</pubDate>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Landlord-Tenant]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial landlord tenant]]></category>
<category><![CDATA[commercial lease]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[commercial tenant rights]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[default]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[enforcement actions]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[quiet enjoyment]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1065</guid>
<description><![CDATA[This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. Part 1, entitled “Getting It Right” discussed the importance of clarity in lease drafting, and the potential […]]]></description>
<content:encoded><![CDATA[
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p></p>
</blockquote>
<div class="wp-block-image">
<figure class="alignleft is-resized"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" style="width:175px;height:245px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="175" height="245" data-attachment-id="1051" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/catherine-cooke-shareholder-at-rsp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-orig-size="175,245" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D7000","caption":"","created_timestamp":"1367319064","copyright":"","focal_length":"98","iso":"125","shutter_speed":"0.008","title":"","orientation":"1"}" data-image-title="Catherine Cooke" data-image-description="" data-image-caption="<p>Catherine Cooke<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?resize=175%2C245" alt="Catherine Cook Shareholder at Robbins, Salomon & Patt, Ltd." class="wp-image-1051"/></a><figcaption class="wp-element-caption">Catherine A. Cooke<br /> Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p><em>This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. <a title="Commercial Landlord-Tenant Issues – PART 1 – Getting it Right" href="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/" target="_blank" rel="noopener">Part 1, entitled “Getting It Right”</a> discussed the importance of clarity in lease drafting, and the potential for unintended leasehold easements for parking, and other uses.</em></p>
<p><em>In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: Commercial Landlord-Tenant Practice. To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook chapter. For the 2015 Edition, IICLE asked R. Kymn Harp and Catherine A. Cooke to write the chapter entitled Tenant’s Duties, Rights and Remedies. We were, of course, pleased to oblige. Although each of us represent commercial landlords at least as often as we represent commercial tenants, a clear understanding of the duties, rights and remedies of commercial real estate tenants is critical when representing either side of the commercial lease transaction. </em></p>
<p><em>The following is an excerpt (slightly edited) from our chapter in the 2015 Edition. We hope you find this excerpt, and the excerpts that will follow, informative and useful. Feel free to contact IICLE directly to purchase the entire volume.</em></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">The COVENANT OF QUIET ENJOYMENT </span><br /><span style="color: #1897ab;">What Is It? — General Principles</span></h2>
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<p>It has long been the law in Illinois that a covenant of quite enjoyment is implied in all lease agreements. <em>Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates</em>, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981); <em>64 East Walton, Inc. v. Chicago Title & Trust Co</em>., 69 Ill.App.3d 635, 387 N.E.2d 751, 755, 25 Ill.Dec. 875 (1st Dist. 1979); <em>Berrington v. Casey</em>, 78 Ill. 317, 319 (1875); <em>Wade v. Halligan</em>, 16 Ill. 507, 511 (1855).</p>
<p>A covenant of quiet enjoyment “promises that the tenant shall enjoy the possession of the premises in peace and without disturbance.” [Emphasis in original.] <em>Checkers, Simon & Rosner v. Lurie Co</em>., No. 87 C 5405, 1987 WL 18930 at *3 (N.D.Ill. Oct. 20, 1987). This does not mean, however, that no breach of the covenant of quiet enjoyment may be found in a leasehold without a finding that the lessor intended to deprive the lessee of possession. <em>Blue Cross Ass’n, supra</em>, 427 N.E.2d at 27. It simply means that a tenant must actually be in possession of the premises to claim a breach of the covenant of quiet enjoyment. If the tenant has already vacated the premises before the disturbance has commenced, no breach of the covenant of quiet enjoyment occurs. <em>Checkers, Simon & Rosner, supra</em>, 1987 WL 18930 at *3.</p>
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<p>An implied covenant of quiet enjoyment includes, “absent a lease clause to the contrary, the right to be free of the lessors’ intentional interference with full enjoyment and use of the leased premises.” <em>Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America</em>, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989), quoting <em>American Dairy Queen Corp. v. Brown-Port Co</em>., 621 F.2d 255, 258 (7th Cir. 1980).</p>
<p>If the landlord breaches the covenant of quiet enjoyment, the lessee may remain in possession and claim damages for breach of lease. In such case, the measure of damages is the difference between the rental value of the premises in light of the breached covenant of quiet enjoyment and the rent that the tenant agreed to pay under the lease, together with such special damages as may have been directly and necessarily incurred by the tenant in consequence of the landlord’s wrongful act. <em>64 East Walton, supra</em>, 387 N.E.2d at 755.</p>
<p>Although Illinois cases defining the precise scope of a covenant of quiet enjoyment are rare, BLACK’S LAW DICTIONARY, pp. 1248 – 1249 (6th ed. 1993) defines “quiet enjoyment” in connection with the landlord-tenant relationship as “the tenant’s right to freedom from serious interferences with his or her tenancy. <em>Manzaro v. McCann</em>, 401 Mass. 880, 519 N.E.2d 1337, 1341. (Ringing for more than one day of smoke alarms in an apartment building could be sufficient interference with the tenants’ quite enjoyment of leased premises to justify relief against the landlord.).”</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">HOW THE COVENANT OF QUIET ENJOYMENT MAY APPLY— CASE LAW</span></h2>
<p>In <em>Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates</em>, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981), the First District Appellate Court discussed the covenant of quiet enjoyment in the lease as granting the tenant a right of quiet and peaceful possession and enjoyment of the whole premises and equated a breach of quiet enjoyment under a lease to a private nuisance. “A private nuisance in a leasehold situation is ‘an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume a consequent damage.’ ” Id., quoting <em>Great Atlantic & Pacific Tea Co. v. LaSalle National Bank</em>, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 812 (1st Dist. 1979).</p>
<p>The tenant had entered into a five-year lease on August 22, 1978, with a five-year renewal option, for approximately 53,000 square feet of the </p>
<span id="more-1065"></span>
<p>15th floor of the building located at 666 North Lake Shore Drive in Chicago. The lease stated that the premises were to be used for computer installation and general office space, and the tenant expended in excess of $2,000,000 in leasehold improvements, installed approximately $6,000,000 in computer equipment, and was fully operational in August 1980.</p>
<p>In April 1979, the building was purchased by a new owner for the purpose of converting it to a mixed-use residential, commercial, and office facility. In August 1979, the new owner advised the tenant that the renovation program required alternations in the plaintiff’s leasehold in the form of physical penetrations for installation of plumbing, ventilation, and electrical risers to service the condominium and office areas on floors above and below the tenant’s leased premises. The tenant refused to permit penetrations into the plaintiff’s leased space. Notwithstanding the tenant’s refusal, the landlord proceeded with construction and penetrated the tenant’s space for installation of the risers in accordance with the landlord’s renovation plans. The tenant sued to obtain a preliminary injunction, but the trial court declined to issue injunctive relief. The tenant appealed.</p>
<p>On appeal, the appellate court reversed the trial court, stating: “Paragraph 42A of the lease expressly grants (tenant) the right of quiet and peaceful possession and enjoyment. The meaning of this clause is not controverted. (Tenant) had a right to seek injunctive relief for its breach when the conduct of (landlord) substantially interfered with (tenants’) use and enjoyment of the premises.” 427 N.E.2d at 273.</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">PRIVATE NUISANCE DISTINGUISHED</span></h2>
<p>Similar to breach of the covenant of quiet enjoyment is the tort of maintaining a nuisance. In <em>Great Atlantic & Pacific Tea Co. v. LaSalle National Bank</em>, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 81 (1st Dist. 1979), the First District Appellate Court stated:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>A private nuisance is a nontrespassory invasion of another’s interest in the private use and enjoyment of land. . . . It is an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume consequent damage. . . . What is an unreasonable use of one’s property under the circumstances, is determined by weighing the following factors:</p>
<p>(a) The extent of the harm involved;</p>
<p>(b) the character of the harm involved;</p>
<p>(c) the social value that the law attaches to the type of use or enjoyment invaded;</p>
<p>(d) the suitability of the particular use or enjoyment invaded to the character of the locality; and</p>
<p>(e) the burden on the person harmed or avoiding the harm.</p>
<p>. . . The weight that each factor is accorded is relative to the circumstances of the case.” [Citations omitted.]
</blockquote>
<h2 class="wp-block-heading"><span style="color: #1897ab;">SCOPE OF INVASION</span></h2>
<p>Although <em>Blue Cross Ass’n, supra</em>, involved a physical invasion of the tenant’s space, physical invasion is not necessarily required. A tenant has a right to the full use and enjoyment of the leased premises without the landlord’s intentional interference, absent a lease clause to the contrary. Infinity Broadcasting, supra. By equating a breach of the covenant of quiet enjoyment to a private nuisance, the Illinois Appellate Court, in <em>Blue Cross Ass’n, supra</em>, inferred that the breach could be a nontrespassory invasion into the tenant’s leased premises.</p>
<p><span style="color: #1897ab;"><strong>Query:</strong></span> Do the following activities by a landlord constitute a breach of the covenant of quiet enjoyment, absent an express lease clause permitting these activities, if the activities cause material annoyance, inconvenience, discomfort or hurt to the commercial tenant?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Loud construction on adjacent or nearby premises during normal business hours?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Prolonged disruption of elevator service or other access to the premises during normal business hours?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Failure to maintain working HVAC suitable to the tenant’s commercially reasonable use of the leased premises?</p>
<p><span style="color: #1897ab;"> </span><strong><span style="color: #1897ab;">PRACTICE POINTER</span></strong></p>
<p><span style="color: #1897ab;">A landlord in a multi-tenant building would be wise to include as part of the landlord’s “standard boilerplate” provisions, a modified covenant of quiet enjoyment granting landlord the right to reasonably penetrate the leased premises as necessary, appropriate or convenient to install and maintain plumbing, electrical, telecommunications, fire suppression, HVAC and other components and systems as determined by landlord, in landlord’s sole discretion, to be necessary, useful or convenient to the preparation, use and/or occupancy of other portions of the building, and to conduct construction activities in adjacent or nearby premises, and to temporarily modify the means and/or configuration of access to the premises for safety or convenience, so long as such activities do not unreasonably interfere with commercially reasonable use of the leased premises by tenant for the purposes for which the premises are leased. If the landlord fails to include such a provision, the tenant may have to right to stop landlord’s work.</span></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">LIGHT AND AIR</span></h2>
<p>The covenant of quiet enjoyment does not guarantee a tenant a right to unobstructed light and air. In <em>Keating v. Springer</em>, 146 Ill. 481, 34 N.E. 805, 807 (1893), the Illinois Supreme Court held that “a landlord will not be liable for obstructing his tenant’s windows by building on an adjacent [lot], in the absence of any covenant or agreement in the lease forbidding him to do so.”</p>
<p>Similarly, in <em>Baird v. Hanna</em>, 328 Ill. 436, 159 N.E. 793, 794 (1927), the Illinois Supreme Court held that “the simplest rule, and that best suited to a country like the United States, in which changes are continually taking place in the ownership and in the use of lands, is that no easement of light can be acquired without the express grant of an interest in, or covenant relating to, the lands over which the right is claimed.”</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">TELEVISION AND RADIO SIGNALS</span></h2>
<p>A claimed right to unobstructed transmission of television and radio signals has been held to the same standard and analysis as a claimed right to unobstructed light and air. While not actually a landlord-tenant case, <em>People ex rel. Hoogasian v. Sears, Roebuck & Co</em>., 52 Ill.2d 301, 287 N.E.2d 677 (1972), is instructive in its clarification that claimed easements for television and radio signals will be governed by the same analysis as claimed easements for light and air.</p>
<p>In <em>Hoogasian</em>, certain villages in the Chicago area sued to enjoin Sears from constructing the high-rise office building that became known as “Sears Tower” (now Willis Tower), contending that the tower would distort television reception and depress real estate values, and therefore constitute a nuisance. The Illinois Supreme Court upheld dismissal of the case, determining that the same standard applicable to light and air applies to television and radio signals, and applied the general rule that a landowner has no legal right to the free flow of light and air across the adjoining land of his or her neighbor. See also <em>Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America</em>, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989).</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">DAMAGES FOR BREACH OF THE COVENANT OF QUIET ENJOYMENT</span></h2>
<p>In <em>64 East Walton, Inc. v. Chicago Title & Trust Co</em>., 69 Ill.App.3d 635, 387 N.E.2d 751, 25 Ill.Dec. 875 (1st Dist. 1979), the landlord did not contest that there was a breach of the covenant of quiet enjoyment but did contest the amount of damages awarded. In analyzing the scope of damages a tenant could recover for breach of the covenant of quiet enjoyment, the court stated:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>The relevant law, although by no means plentiful, is clear. A covenant of quiet enjoyment is implied in all lease agreements. . . . If the lessor breaches the covenant, the lessee may remain in possession and thus be liable for rent but still maintain an action for damages. . . . The measure of damages in such a case is the difference between the rental value of the premises involved and the rent which the lessee has agreed to pay, together with such special damages as may have directly and necessarily occasioned to the lessee by the lessor’s wrongful act. . . . Thus, we must examine the wrongful acts of defendant and determine whether they directly and necessarily occasioned the damages awarded, keeping in mind that a trial court’s assessment of damages will be set aside only if it is manifestly erroneous. (Citations omitted.) 387 N.E.2d at 755.</p>
</blockquote>
<p><strong><span style="color: #1897ab;">PRACTICE POINTER</span></strong></p>
<p><span style="color: #1897ab;">Generally speaking, a breach of a covenant of quiet enjoyment is a breach of a contractual covenant contained (or implied) in a lease, constituting a cause of action against a landlord. If the “material annoyance, inconvenience, discomfort, or hurt” is caused by a nearby property owner or cotenant, the proper cause of action against such adjacent property owner or cotenant is likely “maintaining a private nuisance” rather than a breach of any covenant of quiet enjoyment, since, under those circumstances, there is no privity of contract through which a “covenant” of any sort might arise.</span></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">LESSON LEARNED</span></h2>
<p>The covenant of quiet enjoyment, while implied in all leases, is a covenant often expressly stated in the so-called “standard boilerplate” provisions of a commercial lease. As a contract covenant, it can be modified and adapted to the needs of the landlord and tenant by appropriate and careful drafting. Had the landlord in Blue Cross Ass’n, supra, included in the lease appropriate language granting it the right to enter upon and penetrate the tenant’s space for the purpose of installing plumbing, ventilation and electrical risers as determined by landlord to be reasonably necessary for the build-out and use of other portions of the building, no breach of the covenant of quiet enjoyment would have likely occurred. As noted by the court, a breach of the covenant of quiet enjoyment requires an intentional interference with a tenant’s full enjoyment and use of the leased premises which interference is unreasonable, unwarranted or unlawful. If the lease had included a suitable clause or provision expressly permitting the landlord to penetrate a portion of the leased space to install plumbing, ventilation, electrical risers and other systems to serve other portions of the building, no breach of the covenant of quiet enjoyment would have occurred.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<h2 class="wp-block-heading"><span style="color: #1897ab;">AUTHOR’S NOTE</span></h2>
<p>If you are a property owner/developer planning to reconfigure a multi-tenant commercial property, or planning an adaptive reuse of commercial property encumbered with existing leases, proper due diligence requires a close examination of existing leases to confirm your rights to implement your development plan. If there is a risk of violating the covenant of quiet enjoyment, a strategy to mitigate that risk should be developed as part of the overall development plan. Otherwise, you may find yourself unable to proceed with your development plan, as existing commercial tenants enjoin implementation to your potential extreme financial detriment.</p>
</blockquote>
<p><em>Thanks for listening,</em><br /><em>R. Kymn Harp and Catherine A. Cooke</em></p>
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<h3 class="wp-block-heading"><span style="color: #1897ab;"><em>COMING UP . . .</em></span></h3>
<p>In Part 3 of this series, we will discuss <span style="color: #1897ab;"><em><strong>Constructive Eviction</strong></em></span>—including the rights and remedies available to a commercial tenant who is constructively evicted by its landlord.</p>
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<title>POP QUIZ! — Commercial Real Estate Due Diligence</title>
<link>http://harp-onthis.com/pop-quiz-commercial-real-estate-due-diligence/</link>
<comments>http://harp-onthis.com/pop-quiz-commercial-real-estate-due-diligence/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Fri, 13 Feb 2015 00:06:29 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
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<category><![CDATA[closing]]></category>
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<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
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<description><![CDATA[I read once that if you took all the lawyers in the world and laid them end to end along the equator — it would be a good idea to leave them there. That’s what I read. What do you […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>I read once that if you took all the lawyers in the world and laid them end to end along the equator — it would be a good idea to leave them there.</p>
<p>That’s what I read. What do you suppose that means?</p>
<p>I have written before about the need to exercise due diligence when purchasing commercial real estate. The need to investigate, before Closing, every significant aspect of the property you are acquiring. The importance of evaluating each commercial real estate transaction with a mindset that once the Closing occurs, there is no going back. The Seller has your money and is gone. If post-Closing problems arise, Seller’s contract representations and warranties will, at best, mean expensive litigation. CAVEAT EMPTOR! [“<em>Let the buyer beware!</em>”]
<p>Paying extra attention at the beginning of a commercial real estate transaction to “get it right” can save tens of thousands of dollars versus when a deal goes bad. It’s like the old <em>Fram</em>® oil filter slogan during the 1970’s: “<em>You can pay me now – or pay me later</em>”. In commercial real estate, however, “later” may be too late.</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1845" data-permalink="http://harp-onthis.com/pop-quiz-commercial-real-estate-due-diligence/entrepreneurs-meet-the-broker-and-they-hand-shake/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="entrepreneurs-meet-the-broker-and-They-Hand-Shake" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?resize=400%2C267" alt="entrepreneurs meet the broker and they hand shake" class="wp-image-1845" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Buying commercial real estate is NOT like buying a home. It is not. It is not. It is NOT.</p>
<p>In Illinois, and many other states, virtually every residential real estate closing requires a lawyer for the buyer and a lawyer for the seller. This is probably smart. It is good consumer protection.</p>
<p>The “problem” this causes, however, is that every lawyer handling residential real estate transactions considers himself or herself a “real estate lawyer”, capable of handling any real estate transaction that may arise.</p>
<p>We learned in law school that there are only two kinds of property: real estate and personal property. Therefore – we intuit – if we are competent to handle a residential real estate closing, we must be competent to handle a commercial real estate closing. They are each “real estate”, right?</p>
<p><em>ANSWER</em>: Yes, they are each real estate. No, they are not the same.</p>
<p>The legal issues and risks in a commercial real estate transaction are remarkably different from the legal issues and risks in a residential real estate transaction. Most are not even remotely similar. Attorneys concentrating their practice handling residential real estate closings do not face the same issues as attorneys concentrating their practice in commercial real estate.</p>
<p>It is a matter of experience. You either know the issues and risks inherent in commercial real estate transactions – and know how to deal with them – or you don’t.</p>
<p>A key point to remember is that the myriad consumer protection laws that protect residential home buyers have no application to – and provide no protection for – buyers of commercial real estate.</p>
<p>Competent commercial real estate practice requires focused and concentrated investigation of all issues material to the transaction by someone who knows what they are looking for. In short, it requires the experienced exercise of <em>due diligence</em>.</p>
<p>I admit – the exercise of due diligence is not cheap, but the failure to exercise due diligence can create a financial disaster for the commercial real estate investor. Don’t be “<em>penny wise and pound foolish</em>”. If you are buying a home, hire an attorney who regularly represents home buyers. If you are buying commercial real estate, hire an attorney who regularly represents commercial real estate buyers.</p>
<p>Years ago I stopped handling residential real estate transactions. As an active commercial real estate attorney, even I hire residential real estate counsel for my own home purchases. I do that because residential real estate practice is fundamentally different from commercial real estate.</p>
<p>Maybe I do <em>harp</em> on the need for competent counsel experienced in commercial real estate transactions. I genuinely believe it. I believe it is essential. I believe if you are going to invest in commercial real estate, you must apply your critical thinking skills and be smart.</p>
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<h2 class="wp-block-heading"> </h2>
<h2 class="wp-block-heading"><span style="color: #008080;">POP QUIZ:</span></h2>
<p>Here’s a simple test of YOUR critical thinking skills:</p>
<p>Please read the following Scenarios and answer the questions TRUE or FALSE: </p>
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<p><em><strong>Scenario No. 1:</strong></em> It’s Valentine’s Day. You are in hot pursuit of the love of your life. A few weeks ago, she confided in you that all she ever dreamed of for Valentine’s Day was that her lover would show up at her door, dressed in a white tuxedo with tails and a top hat, and present<br />her with a beautiful bouquet of flowers. You’ve rented the tuxedo, but now you are concerned about how much money you are spending.</p>
<p><strong>TRUE OR FALSE?:</strong> Since flowers are pretty much all the same, it is OK for you to skip the roses and show up with a bouquet of fresh yellow dandelions.</p>
<p><em><strong>Scenario No. 2:</strong></em> For several years your eyesight has deteriorated to the point where you can barely see your alarm clock. You are now considering corrective eye surgery so you won’t need glasses. Your sister-in-law had corrective eye surgery and has had spectacular results. She recommends her eye surgeon, but mentions the cost is about $5,700 for both eyes and that the surgery is not covered by insurance. A few years ago, you had surgery to correct your hemorrhoids and it cost you only eight hundred bucks.</p>
<p><strong>TRUE OR FALSE?:</strong> Since surgeons all went to medical school and are all medical doctors, you are being frugal and wise by asking the surgeon who performed your hemorrhoid surgery to perform your corrective eye surgery.</p>
<p><em><strong>Scenario No. 3: </strong></em> Several years ago, when you first got married, you asked a former classmate who is a lawyer to represent you in the purchase of your town home. The cost was only $375. A year later, you started a family and decided you needed a Will. The same attorney prepared Wills for you and your spouse for a total cost of $700. You started your own business and your attorney friend formed a corporation for you and charged you only $600 plus the cost of the corporate minute book. Years later, when your son was arrested for misdemeanor reckless driving, your attorney friend handled the criminal case and got your son off with supervision for only $1,500.</p>
<p>Your business has been successful and you have built a pretty sizable nest egg, but you are tired of working for every dime and want to try investing in real estate. You have your eye on a strip shopping center. It includes a grocery store, bank, hardware store, dry cleaners (on a month to month tenancy), a couple of fast food restaurants, a gift shop, dental office, bowling alley (with a lease about to expire), and wraps behind a gas station/mini-mart on the corner. The purchase price is $8,000,000, but the net operating income looks pretty good. You figure if you turn the bowling alley into a full service restaurant/banquet facility, and convert the dry cleaners into a 24-hour coin laundry, the net operating income will increase and the shopping center will turn into a spectacular investment. You plan to pull together much of your life savings and put down $2,000,000 to buy this strip shopping center, borrowing the balance of $6,000,000. You remember that your lawyer friend handled the purchase of your home several years ago, so you know he handles real estate.</p>
<p><strong>TRUE OR FALSE?:</strong> Commercial real estate is the same as residential real estate [Hey, its all dirt, isn’t it (?)], so you are being a shrewd businessperson by hiring your lawyer friend who will charge much less than a lawyer who handles shopping center purchases several time a year. [What is this “due diligence” stuff anyway?]
<h2 class="wp-block-heading"><span style="color: #008080;">ANSWERS:</span></h2>
<p>If you answered <em>TRUE</em> for any of the foregoing Scenarios . . .</p>
<p>…Well …</p>
<p>… you may NOT be quite ready for prime time. Perhaps you should stop and reflect a while on the course your life has taken.</p>
<p>If, on the other hand, you understand that the answer to each of the foregoing questions is <em>FALSE</em>, I am available to help you in <em>Scenario No. 3</em>.</p>
<p>For <em>Scenario No. 2</em>, you should follow your sister-in-law’s suggestion and contact her eye surgeon, or some other eye surgeon with equal skill.</p>
<p>For <em>Scenario No. 1</em>, you are on your own. [But, if you answered TRUE for Scenario No. 1, you may be FOREVER on you own.]
<p>Critical thinking skills are vital. Use them when dealing with Commercial Real Estate.</p>
<p><em>Thanks for listening . . . </em><br /><em>Kymn</em></p>
<p>P.S. Please excuse me for <em>harping</em> on due diligence. ~ It is my birthright. ~ With the last name “Harp”, I am entitled to <em>harp</em> on anything I wish.</p>
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<title>Asset Protection – Lessons Learned</title>
<link>http://harp-onthis.com/asset-protection-lessons-learned/</link>
<comments>http://harp-onthis.com/asset-protection-lessons-learned/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 18 Sep 2014 11:10:19 +0000</pubDate>
<category><![CDATA[Asset Protection]]></category>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Private Sector Business]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[asset protection]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[default]]></category>
<category><![CDATA[defense]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[foreclosure]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=58</guid>
<description><![CDATA[“The best time to plant a tree was twenty years ago.         The second best time is today.” Chinese proverb For over 35 years, I have represented commercial real estate investors, developers and business owners. Most of that time has […]]]></description>
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<h4 class="wp-block-heading"><em>“The best time to plant a tree was twenty years ago.</em></h4>
<h4 class="wp-block-heading"><em> The second best time is today.”</em></h4>
<p><em>Chinese proverb</em></p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="300" data-attachment-id="59" data-permalink="http://harp-onthis.com/asset-protection-lessons-learned/httpwww-dreamstime-comstock-image-empty-safe-image27096841/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=1732%2C1732" data-orig-size="1732,1732" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Marvinjk | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/stock-image-empty-safe-image27096841"}" data-image-title="http://www.dreamstime.com/stock-image-empty-safe-image27096841" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=300%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=1024%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=300%2C300" alt="http://www.dreamstime.com/stock-image-empty-safe-image27096841" class="wp-image-59" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=300%2C300 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=150%2C150 150w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=1024%2C1024 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?w=1732 1732w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>For over 35 years, I have represented commercial real estate investors, developers and business owners. Most of that time has been spent helping them acquire, finance, expand, develop, manage and grow their assets and businesses. For the past 5 to 6 years, as we have struggled through the <i>Great Recession</i>, a huge amount of my time has been spent helping clients <i>keep</i> their assets.</p>
<p>Growing up, I was steeped in the practical view that it is not so much what you acquire that counts, but, rather, what you keep. My parents and grandparents were not in the real estate business to make <i>others </i>wealthy. They were playing real life Monopoly<span style="font-size: small;">®</span>. They played to win. It was less about money for money’s sake than it was </p>
<span id="more-58"></span>
<p>a means of keeping score. Invest. Reinvest. Expand the bottom line. Control your losses. And keep what you acquire.</p>
<p>A key concern was always asset protection. Perhaps this was a byproduct of my grandfather’s experiences during the <i>Great Depression</i>. He did well, while others around him lost everything. A theme underpinning virtually all investment strategies was to structure our business affairs into risk remote compartments, so that if bad things happened to one project, or with one business, the damage could be contained. My father would compare it to the structure of his ship in the Navy during World War II. If the hull was damaged, water tight bulkheads could contain the damage to avoid jeopardizing the entire ship.</p>
<p>This brings to light one of the great misconceptions about asset protection. A sizable number of people start with the belief that the objective of asset protection is to prevent all creditors from ever getting any of their assets or income. Realistically, it doesn’t work that way. Not even if you use an offshore asset protection trust or other advanced asset protection devices. To even approach making that happen, you would have to create such a tangled weave of trusts and limited liability entities, and give up so much control, that you would never be able to conduct your business or live your life as a functioning human being. It would be immensely expensive, and it still wouldn’t protect <i>everything</i>.</p>
<div class="wp-block-image">
<figure class="alignright size-large is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1918" data-permalink="http://harp-onthis.com/asset-protection-lessons-learned/assetmanagementwordscloudonscreen-financialandbusinessconcept/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=2560%2C1707" data-orig-size="2560,1707" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2018 Wright Studio\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Asset,Management,Words,Cloud,On,Screen.,Financial,And,Business,Concept.","orientation":"1"}" data-image-title="Asset,Management,Words,Cloud,On,Screen.,Financial,And,Business,Concept." data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=1024%2C683" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection.jpg?resize=401%2C267" alt="asset protection" class="wp-image-1918" width="401" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=1024%2C683 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=768%2C512 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=1536%2C1024 1536w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=2048%2C1365 2048w" sizes="auto, (max-width: 401px) 100vw, 401px" /></figure></div>
<p>Asset protection need not be particularly complicated or expensive. Basic asset protection strategies can be implemented that do not get in the way of your business or everyday life. Although advanced asset protection planning can utilize off-shore trusts and off-shore bank accounts, those tools and techniques are the exception rather than the rule. They are available if the situation warrants, but for most people there is seldom a legitimate reason to go to such extremes.</p>
<p>Sadly, a significant number of commercial real estate investors and business owners, and many of their lawyers and accountants, pay almost no attention to even basic asset protection strategies. This was never more obvious, and unfortunate, than during the <i>Great Recession</i> we have been working through over the past five to six years. Otherwise sophisticated and historically successful commercial real estate investors, developers and business owners have lost virtually everything. What makes this even more tragic is that, with even modest asset protection planning, many of these catastrophic financial disasters could have been averted.</p>
<p>Clients of mine who planned ahead by structuring their affairs for asset protection have survived this recession and are generally well positioned to move forward to take advantage of emerging opportunities as the economy improves. Many who did not are faced with starting over.</p>
<p>Why not think ahead to protect your assets? You are under no legal obligation to structure your financial affairs in a way that makes it easier for banks and other creditors to take virtually everything you own. Your obligation is to your family, and to yourself, to make sure your life’s work and life’s savings are not lost in the event of financial calamity.</p>
<p>A key point about asset protection is that, to be effective, it must be done well in advance. Once the proverbial <i>fan</i> has been hit, it is likely too late. There may still be some modestly effective strategies to be employed to minimize damage, but real asset protection with powerfully effective outcomes starts when there are no (or, at least, very few) storm clouds on the horizon.</p>
<p>Once you are in financial trouble, it is often too late. Transfers of assets for less than fair value can be set aside as a preference in bankruptcy, or as a fraudulent transfer. The “fraud” in “fraudulent transfer” is not traditional fraud. It is simply the transfer of an asset for less than fair value for the principal purpose of avoiding creditors.</p>
<p>In Illinois, the statute of limitations for fraudulent transfers is four years. This means attempts to transfer assets for less than fair value can be attacked and set aside for four years after the transfer is made. For Medicaid, the look-back period is five years. Early adoption and implementation of even a simple asset protection plan can avoid these attacks.</p>
<p>One of the simplest examples of asset protection: If you are married and own a home with your spouse in Illinois or Indiana, and in most other states, there is virtually no excuse for not owning the home as <i>tenants by the entireties</i> to protect your home from claims of creditors of only one spouse. This is particularly true if one spouse is engaged in business or professional activities with a high risk of liability (business owner, investor, developer, doctor, entrepreneur, etc.), while the other is not. Remarkably, I discovered while defending real estate developers and investors in loan workout and loan settlement efforts over the past few years that not even this modest asset protection tool is always in place. It would have cost nothing. Instead, its absence cost some families their homes.</p>
<p>Beyond these fundamental considerations, there are many others. A common mistake made by business owners is that they will sometimes form a corporation or limited liability company with the intent to protect themselves from personal liability, but then place virtually all of their business assets in a single company, or in a subsidiary of a high risk operating company. If a judgment is entered against the company, all of the business assets may be lost.</p>
<p>Whenever practical, business operations posing a risk of liability should be separated from asset ownership. Assets can and should typically be owned by a low-risk (preferably tax-advantaged) entity and leased or licensed to the higher risk operating company. The best, and least expensive, time to implement this structure is when you acquire the asset or business. Ownership of the low-risk company should likewise be held by a low-risk owner – perhaps a spouse, adult child, trust or holding company. The asset protection plan can, and often should, be part of a more comprehensive estate plan.</p>
<p>Similarly, real estate investments and business ownership structures are often not adequately designed to militate against the risk of liability arising from loan and lease guaranties or other sources of liability to individual sponsors or principals.</p>
<p>There is much that can be done to protect your assets. Many techniques present tax advantages as well. Exactly what can be done depends upon your particular circumstances and when you begin. The best time to begin would have been several years ago. The second best time to begin is now. It is foolish to leave your hard earned assets needlessly exposed to creditor claims when even basic asset protection planning can protect them.</p>
<p>War stories abound of commercial real estate investors and business owners who have lost fortunes, large and small, because they did not plan ahead. Perhaps they thought they were smart enough to be able to avoid financial catastrophes like we have experienced over the past several years. Or they thought they had large enough incomes or net worth to withstand economic adversity or unexpected liability. Or they believed they had such great relationships with their banks or other lenders that obtaining loan extensions or new working capital lines of credit would never be a problem. I’ve head most of the “reasons” – but none of them matter when your assets are being attached by hungry creditors. When you go from being worth millions, to having huge unsatisfied deficiency judgments entered against you, the <i>reasons</i> for not protecting your assets, and your family’s future, ring hollow.</p>
<p>The past five to six years, in particular, have been an asset protection laboratory. Theory has been tested. We have seen many examples of even basic asset protection techniques that work, and have seen, unfortunately, what happens when little or no asset protection planning took place.</p>
<p>If your real estate investments and commercial activities are worth your time and energy – particularly if you dedicate most of your adult life away from your family working to make them succeed – then they are worth protecting. It is much more cost effective to develop and implement an asset protection plan “<i>as you go</i>“, rather than waiting until you decide your estate is “<i>big enough to protect</i>“. At that point, it may be too late, it will certainly be more expensive, and will very likely be less effective. Often, asset protection <i>as you go</i> will cost no more to do right than you spend doing it wrong.</p>
<p>Over the next several years a lot of rebuilding will take place. Literally, in the form of new and redeveloped commercial real estate projects and business enterprises, and figuratively, as previously successful real estate professionals and business owners rebuild their financial lives. Do not make the same mistakes this time around as were made by many in the past. Plan ahead. Build-in basic asset protection strategies in every business structure you devise. Don’t wait another twenty years. Depending upon your age, you may not get a <i>third</i> chance.</p>
<p>Thanks for listening . . .</p>
<p>Kymn</p>
]]></content:encoded>
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<title>LENDING BLIND – SIX YEARS AFTER LEHMAN’S COLLAPSE</title>
<link>http://harp-onthis.com/lending-blind-the-pitfall-of-commercial-real-estate-lending-without-full-knowledge/</link>
<comments>http://harp-onthis.com/lending-blind-the-pitfall-of-commercial-real-estate-lending-without-full-knowledge/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 15 Sep 2014 11:10:53 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[lending]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[bank]]></category>
<category><![CDATA[banks]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[lenders]]></category>
<category><![CDATA[loan documentation]]></category>
<category><![CDATA[loans]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
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<description><![CDATA[Commercial Real Estate Lending:  What You Don’t Know Can Hurt You! If there is anything commercial real estate lenders have learned during the collapse of the commercial real estate market over the past five or so years, it would be the […]]]></description>
<content:encoded><![CDATA[
<h2 class="wp-block-heading">Commercial Real Estate Lending: What You Don’t Know Can Hurt You!</h2>
<p>If there is anything commercial real estate lenders have learned during the collapse of the commercial real estate market over the past five or so years, it would be the danger of “lending blind”. Commercial real estate lending without fully understanding the project is a prescription for disaster. An original version of this article was first published in 2005. It is eerie how prophetic the warning signs were. Surely lenders have learned. . . .</p>
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<p>What is “lending blind”? Lending blind is making commercial real estate loans without fully understanding the underlying project and the collateral risks it presents. Lending blind is closing one’s eyes to important legal, environmental and land use issues uniquely applicable to commercial real estate and ignoring available risk-shifting techniques in the hope or unfounded belief that if the issues are not carefully considered, maybe they won’t exist.</p>
<p>Make no mistake: Commercial real estate lending is not the same as residential real estate lending. [Little did we anticipate where the residential real estate market was headed when this comparison was made.] Many bankers and other lenders faced with customer resistance to higher loan costs may wish to close their eyes to this reality. Ignoring this reality, however, does not change it. Ignoring this reality may on the surface seem to cut costs, but it can endanger bank profits and jeopardize capital.</p>
<p>“Sound and safe lending practices” is not just a phrase used by banking regulators. It should be a way of doing business.</p>
<p>Failing to focus on genuine risks presented by commercial real estate lending is not a sound and safe lending practice.</p>
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<p>Believing a commercial real estate loan is properly documented through use of pre-packaged computer generated loan documents, without also requiring qualified, in-depth analysis of land use controls imposed by documents of record and zoning, knowledgeable examination of survey, lease subordination, insurance, access, borrower authority and other legal issues, and without fully understanding environmental risks presented by existing, former or contemplated tenants, occupiers, and adjacent land owners, is not following sound and safe lending practices.</p>
<p>Blindly following a loan document checklist and filling the loan file with documents and materials that “evidence” a well documented loan, without a genuine understanding of the limitations, pitfalls, and legal red flags the documents may raise, is not following sound and safe lending practices.</p>
<p>Using the ostrich approach to lending is a game of Russian Roulette. The result can be catastrophic to bank profits and capital if and when the loan goes bad.</p>
<p>Banks and other commercial lenders following these unsound and unsafe banking practices do not like this message. They often assert their loan processors are “good people” with excellent training and years of experience using their canned document software.</p>
<p>The fact that a lender’s in-house loan processors are “good people” is not in question. The fact that they are well-trained to input relevant data so a computer can generate a beautiful set of loan documents is not the issue.</p>
<p>The issue is what may lie beyond the documents.</p>
<p>A perfectly generated set of “standard loan documents” may be of little value if they fail to adequately address unique issues raised by the commercial real estate project serving as collateral. To be certain, each commercial real estate project is different. Unlike owner-occupied residential real estate, it cannot safely be “assumed” that commercial real estate collateral is legally suitable for, or can even legally be used for, its intended use.</p>
<p>A beautifully drafted Mortgage on commercial real estate is of little value if the project does not have a legal right to commercially reasonable access or parking. CASE IN POINT: How secure is a loan on an 800 person banquet facility in a mixed use center if the banquet facility has a legal right to park only 155 cars? CASE IN POINT: What is the collateral value of a hotel on a highly visible highway interchange, which has as its primary means of access only a license to use a private drive that can be closed at any time? [Is the appraiser legally responsible for discovering this fact when making the loan appraisal? What kind of access does the typical title insurance policy insure?]
<p>Obtaining a Lender’s Title Insurance Policy with specialized commercial endorsements is a useful method of shifting risks away from the lender, but the lender must understand how to interpret each endorsement to know what it insures. CASE IN POINT: While attending a loan closing as an “accommodation” for a lender making a large loan to one of its “best customers” to purchase a warehouse and manufacturing building, with instructions from the lender to simply “oversee execution of closing documents (the lender had prepared) and approve title”, it was discovered by lender’s counsel upon review of the lender’s required zoning endorsement that the borrower’s intended use of the facility was expressly prohibited by the applicable zoning ordinance. The ALTA 3.1 Zoning Endorsement to be attached to the loan policy disclosed that the borrower’s intended use was expressly excluded as a permitted use on the land. Neither the lender nor the borrower had read the endorsement or, if they had, they failed to understand its meaning. The transaction was aborted by the regretful but thankful borrower – who would have been unable to operate its business if the transaction had proceeded. Failure to recognize this restriction before funding would have almost certainly meant bankruptcy for one of the bank’s “best customers” and a huge non-performing loan for the lender.</p>
<p>Experience shows that lenders should not assume that borrowers and their counsel will always conduct an adequate due diligence investigation to ascertain all associated risks that may impact the project and important underlying assumptions for a loan.</p>
<p>A lender must also avoid the trap of over-reliance upon a borrower’s representations and warranties in the loan documents. If the borrower is mistaken, what is the consequence? Declaring a material default? CASE IN POINT: A Mortgage securing a $1,650,000 loan contained a warranty from borrower that “all leases encumbering the Real Estate are, and shall remain, subordinate to the lien of the Mortgage.” One lease was, in fact, not automatically subordinate to the Mortgage. The Lender’s Title Insurance Policy included an exception for all existing leases and tenancies. The non-subordinated lease contained a Lessee’s Option to Purchase the entire strip center for $1,520,000. Will declaring a default for breach of warranty solve this defect? What is the lender’s collateral position if the Lessee exercises its Option to Purchase?</p>
<p>The business of lending is about making sound and safe loans that profitably perform as planned. Yield is the key. Not foreclosure. The ability to declare a default and start enforcement and foreclosure proceedings is a remedy of last resort. It is not a viable substitute for diligent evaluation of material loan predicates and will rarely fix problems with underlying collateral.</p>
<p>Sound and safe lending requires comprehensive understanding of all relevant issues confronting each commercial real estate project serving as collateral. If lenders are going to make commercial real estate loans, they should be following sound and safe lending practices. To do this, they must either learn how to fully and meaningfully evaluate all of the attendant risks associated with their collateral, or engage counsel with specialized knowledge and experience in commercial real estate lending to perform this function.</p>
<p>Turning a blind eye to the uniqueness of commercial real estate collateral, and to the limitations of many well-meaning but unknowing in-house loan processors, is neither a sound nor a safe lending practice.</p>
<p>Independent, focused and knowledgeable lender due diligence is a must.</p>
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<title>10 Things to Know About Commercial Real Estate Development Agreements</title>
<link>http://harp-onthis.com/10-things-know-commercial-real-estate-development-agreements/</link>
<comments>http://harp-onthis.com/10-things-know-commercial-real-estate-development-agreements/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Tue, 26 Aug 2014 11:10:30 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[commercial projects]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence binder]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
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<category><![CDATA[keys to closing]]></category>
<category><![CDATA[project entitlement]]></category>
<category><![CDATA[public-private partnership]]></category>
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<category><![CDATA[urban infill]]></category>
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<description><![CDATA[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 about commercial real estate development agreements. In preparing for the presentation, a developer client suggested […]]]></description>
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<p>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 about 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.</p>
<p>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.</p>
<h2 class="wp-block-heading">TOP 10 THINGS TO KNOW ABOUT COMMERCIAL REAL ESTATE DEVELOPMENT AGREEMENTS</h2>
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<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1862" data-permalink="http://harp-onthis.com/10-things-know-commercial-real-estate-development-agreements/realestatedeveloperandarchitectdiscussingnewhousingdevelopmentproject/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developer-and-architect-discussing-new-housing-development-project-in-office.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2021 ronstik\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Real,Estate,Developer,And,Architect,Discussing,New,Housing,Development,Project","orientation":"1"}" data-image-title="Real,Estate,Developer,And,Architect,Discussing,New,Housing,Development,Project" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developer-and-architect-discussing-new-housing-development-project-in-office.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developer-and-architect-discussing-new-housing-development-project-in-office.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developer-and-architect-discussing-new-housing-development-project-in-office.jpg?resize=400%2C267" alt="real estate developer and architect discussing new housing development project in office" class="wp-image-1862" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developer-and-architect-discussing-new-housing-development-project-in-office.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developer-and-architect-discussing-new-housing-development-project-in-office.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developer-and-architect-discussing-new-housing-development-project-in-office.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>1. Development Agreements are not the same thing as Construction Contracts.</p>
<p>2. There are no “master form” Development Agreements.</p>
<p>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 </p>
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<p>property owners, prospective tenants and users, project lenders, municipal governments, including government partners in public-private partnerships, investors, public health and safety authorities, transportation authorities, project neighbors, and other stakeholders.</p>
<p>4. Development Agreements require a development plan encompassing a broad vision of what is planned at the development site.</p>
<p>5. Development Agreements require an understanding of how the site must function after development is complete, and must include provisions to facilitate and assure post-completion functioning.</p>
<p>6. Development Agreements should be sufficiently flexible to accommodate changes in Market Demand.</p>
<p> 7. Development Agreements must accommodate and assure commercially sufficient access to and from the development site, as well as pedestrian and vehicular traffic flow and parking (if applicable) within the development site during and after construction and development, and into the future.</p>
<p>8. Development Agreements must comply with public and private land use controls and must assure permanent or long-term mechanisms to promote and preserve the sound functioning of the development, including a means to adapt, add-to and maintain necessary utility systems and services to accommodate future change.</p>
<p>9. Development Agreements must accommodate development financing and long-term project financing, and refinancing, and a means to pay for ongoing maintenance, replacement and repair of the development site and the improvements on the development site.</p>
<p>10. Development Agreements are typically based on an initial development concept plan, and, through negotiations, evolve to meet the needs, wants and desires of the various stakeholders. This is particularly true if the development will include any form of financial incentives, or special entitlements from municipal or other government sources. A Development Agreement will often include binding covenants for the benefit of the public in return for governmentally provided financial incentives such as tax increment financing, special service area financing, business district financing, sales tax revenue sharing, tax credits, real estate tax abatements, grants, municipal leasing, municipal mortgage financing, or other sources of public funds. The covenants benefiting the public in consideration of government funds may include short and intermediate-term employment targets, MBE/WBE contracting requirements, environmental clean-up requirements, blight removal requirements, open space requirements, public amenity requirements (parks, fountains, bicycle paths, public gathering spaces, water retention facilities, etc.) or just about any other requirement which a municipality may conclude will promote economic development or other public good within the community.</p>
<h2 class="wp-block-heading">Legal Authority for Illinois Municipalities to Provide Public Money for Private Development</h2>
<p>The legal authority of Illinois municipalities to provide public money to private developers to promote economic development is confirmed, <i>inter alia</i>, in the following cases:</p>
<ul class="wp-block-list">
<li><i>People ex rel. City of New Salem v. McMackin</i> 53, Ill. 2d 347, 291 N.E. 2d 807, 813 (1972)</li>
<li><i>Clayton v. Village of Oak Park, </i>171 Ill. Appp.3d, 560, 73 Ill.Dec. 112 (1<sup>st</sup> Dist. 1983).</li>
<li><i>People ex rel. City of Urbana v. Paley, </i>68 Ill. 2d 62, 11 Ill. Dec. 307 (1977)</li>
<li><i>Kelo v. City of New London, Connecticut</i>, 545 US 469, 162 L. Ed. 2d, 439, 125 S.Ct. 2655 (2005)</li>
</ul>
<h2 class="wp-block-heading">Public-Private Partnerships</h2>
<p>Money continues to be tight for developers, and economic development is badly needed by most communities. The solution for each can often be a public-private partnership to encourage economic development and bridge the funding gap. The first task is to recognize the opportunity. Next is to know how to proceed to plan and facilitate commercial real estate development that accommodates a public purpose to justify the infusion of public funds to promote economic development. Last, is to execute the development plan to fulfil the mutual benefit of community stakeholders, the developer and its investors.</p>
<p>The commercial real estate development agreement is the vehicle by which the public-private partnership is documented to protect the interests of the respective stakeholders. It’s purpose is to document in clear and legally enforceable terms, the scope of the development plan and what is to be expected by each participant in the public-private partnership.</p>
<p>A properly envisioned and drafted commercial real estate development agreement will help assure that all stakeholders have a clear understanding of their rights and obligations – including development criteria and funding commitments – to minimize future disputes and maximize the likelihood of successful development.</p>
<p>Public-private partnerships are not new, but they are the wave of the foreseeable future. Public-private partnerships serve to stimulate economic development to achieve local government objectives and to enable commercial real estate development in uncertain economic times.</p>
<p><em>Thanks for listening.</em></p>
<p><em>Kymn</em></p>
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<post-id xmlns="com-wordpress:feed-additions:1">659</post-id> </item>
<item>
<title>PERFECT SELLER – Selling Commercial Real Estate</title>
<link>http://harp-onthis.com/perfect-seller/</link>
<comments>http://harp-onthis.com/perfect-seller/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 07 Jul 2014 14:30:54 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
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<description><![CDATA[ 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 […]]]></description>
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<h2 class="wp-block-heading"><b> Tips on Selling Commercial Real Estate</b></h2>
<p>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.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="199" data-attachment-id="614" data-permalink="http://harp-onthis.com/perfect-seller/questions-and-answers-signpost/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1699%2C1130" data-orig-size="1699,1130" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"Concept image of the six most common questions and answers on a signpost.","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"Questions and Answers signpost"}" data-image-title="Questions and Answers signpost" data-image-description="<p>Concept image of the six most common questions and answers on a signpost.</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1024%2C681" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199" alt="Questions and Answers signpost" class="wp-image-614" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=1024%2C681 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=451%2C300 451w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?w=1699 1699w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>This is not an indictment against any unique class of people. Let’s face it, sooner or later virtually 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. </p>
<span id="more-224"></span>
<h2 class="wp-block-heading">A Common Mistake when Selling Commercial Real Estate</h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1875" data-permalink="http://harp-onthis.com/perfect-seller/realestateprofessionalsandclientsdiscussinghomepurchasesinsuranceor/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2022 Kritsanai Chaemcharindamr\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Real,Estate,Professionals,And,Clients,Discussing,Home,Purchases,,Insurance,Or","orientation":"1"}" data-image-title="Real,Estate,Professionals,And,Clients,Discussing,Home,Purchases,,Insurance,Or" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?resize=400%2C267" alt="home sales agents sit at the office with new homebuyers in the office" class="wp-image-1875" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Generally, once a Seller has made the decision to “sell”, most Sellers want to move ahead with as little pain and delay as possible. Right?</p>
<p>What typically happens? The Seller finds a commercial real estate broker and lists the property. Once the Seller receives a letter of intent or contract offer, the Seller contacts its attorney to prepare or review the contract. The contract is virtually always subject to a “due diligence review” period during which the Buyer is to investigate the property to determine whether it satisfies Buyer’s use or investment criteria. The contract invariably includes a variety of “Seller deliveries”: a title commitment; copies of documents of record; ALTA survey; a rent roll; copies of leases; service contracts; etc. etc. etc.</p>
<p>So, what does the typical Seller do?</p>
<p>Often, the Seller waits until the contract is fully executed before ordering title, obtaining copies of documents of record, compiling leases, ordering a Survey, and gathering other required Seller deliveries.</p>
<p>Worse, many Seller’s adopt the attitude that: “<em>Buyer’s financing and due diligence is Buyer’s problem – leave me out of it</em>.”</p>
<p>While it is certainly true that Buyer’s financing and due diligence is the responsibility of the Buyer, it is also true that much of the information a Buyer needs must be obtained from the Seller. If the Buyer is delayed or obstructed in obtaining necessary information it will be delayed in performing its due diligence review and unable to satisfy necessary conditions for financing. Even if the contract is “not contingent on financing”, the practical reality – in most cases – is that if financing is not obtained the transaction will not Close. Failure to take reasonable steps to facilitate Buyer’s due diligence and financing, then, ultimately becomes the “Seller’s problem”.</p>
<h2 class="wp-block-heading"><b>What SHOULD a Seller do? </b></h2>
<p>Sellers should become proactive instead of reactive. Instead of waiting until a letter or intent is received or a contract is signed before compiling information a Buyer will almost certainly need, a Seller should compile the information a Buyer will need as soon as the Seller decides to sell.</p>
<p>How does Seller know what the Buyer will need? Interesting question. When the Seller was a Buyer, he/she knew exactly what a Buyer needed to evaluate the property, get financing, and Close. Still, even if amnesia has set in, what a Buyer needs is fairly predictable. [See “<a title="10 THINGS EVERY BUYER NEEDS TO CLOSE A COMMERCIAL REAL ESTATE LOAN" href="http://harp-onthis.com/commercial-real-estate/10-things-every-buyer-needs-to-close-a-commercial-real-estate-loan/">10 Things Every Buyer Needs to Close a Commercial Real Estate Loan</a>“.]
<p>If you are a Seller and are, indeed, committed to selling your property, sooner or later you are going to be called upon to deliver at least the typical Seller deliveries. Sooner is better than later. It will speed up the due diligence process and enable the Buyer to determine at the earliest possible date whether there are obstacles to Closing.</p>
<p>Once gathered, the Seller Deliveries should be bound in a “<em>Due Diligence Binder</em>” for distribution to interested Buyers.</p>
<p>It will typically expedite the transaction if the Due Diligence Binder is delivered to the Buyer when the Buyer is first seriously considering purchase of a property – even before the purchase contract is drafted. If, in fact, conditions do exist that prevent a Buyer from proceeding to Closing, it is in Seller’s interest to find out now rather than later so the property can be kept on the market and made available to a Buyer who may be in a position to proceed.</p>
<p>Certainly, Seller may require a prospective Buyer to sign a Confidentiality, Non-Use and Non-Disclosure Agreement as a condition to receiving the Due Diligence Binder if the Seller feels this is desirable.</p>
<p>If the documents are voluminous (such as if the property is a large shopping center, office building or mixed use development with many tenants), an alternative is establish a so-called “<em>war room</em>” where copies of all the documents are maintained and can be made readily available for inspection by prospective Buyers. The war you can be a physical location, or, perhaps preferably, can be an secure online <a title="Wikipedia - Data Room defined" href="http://en.wikipedia.org/wiki/Data_room" target="_blank" rel="noopener">data room</a>. Even then, all title related documents should be compiled in a Due Diligence Binder for ready review by Buyer’s attorney.</p>
<h2 class="wp-block-heading">What a Due Diligence Binder Should Include</h2>
<p>What should the Due Diligence Binder or war room include? At a minimum, it should include the following:</p>
<ol class="wp-block-list">
<li>Current Commitment for Title Insurance</li>
<li>Copies of all documents of record referred to in the Commitment for Title Insurance which will remain on Schedule B of the Commitment of Title Insurance after Closing (i.e. easements, restrictions, covenants, etc.)</li>
<li>Current real estate tax bill(s)</li>
<li>A current Survey prepared in accordance with 2011 (or current) Minimum Standard Detail Requirements for ALTA/ASCM Land Title Surveys, showing all improvements as currently exist, ideally including items 1 through 4, 6(a), 7(a), 7(b)(1), 8 through 10(a), 11(a) and 14 from Table A of the Optional Survey Requirements for ALTA Surveys.</li>
<li>If the property is income producing, operating statements for the past 3 years, a Rent Roll and copies of all leases, licenses and concessions. [Don’t forget about cell-tower leases and billboard or sign leases, and parking leases.]</li>
<li>A schedule of any personal property to be included.</li>
<li>If the property is an out-lot or otherwise part of a larger whole and is required to participate in payment of common area maintenance (CAM) charges, copies of invoices and CAM charge breakdowns for at least the past 2 years.</li>
<li>Service contracts (for elevator, fire/sprinkler maintenance, scavenger, snow removal and landscaping, security, etc.).</li>
<li>Any available environmental site assessment reports (Phase I and Phase 2) and, certainly, any NFR letters or governmental notices relating to environmental issues.</li>
<li>Blueprints, building plans, site plans, schematics, soil compaction test reports, structural reports, roof warranties and other information relating to existing improvements.</li>
</ol>
<p>To the extent practical, a Seller should compile all information in its possession or control that Seller would reasonably want to see if it were a Buyer conducting its own due diligence review to decide whether to purchase the property. (See: <a title="DUE DILIGENCE CHECKLISTS for Commercial Real Estate Transactions" href="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/" target="_blank" rel="noopener">Due Diligence Checklists for Commercial Real Estate Transactions</a><a title="Due Diligence Checklists for Commercial Real Estate Transactions" href="http://harp-onthis.com/commercial-real-estate/due-diligence-checklists-for-commercial-real-estate-transactions/" target="_blank" rel="noopener">)</a>.</p>
<p>If you are a <em>REALLY</em> bold Seller, you might even consider preparing and including with the Due Diligence Binder a bare-boned but workable form of Purchase Agreement you would be willing to accept if tendered with an acceptable purchase price from a qualified Buyer.</p>
<p>Of course, to be a <em>PERFECT SELLER</em>, you need to understand the issues presented by the Due Diligence Binder’s contents, especially as they relate to access, use and financing, and be prepared to work with the Buyer to resolve problematic issues to get the transaction to Closing.</p>
<h2 class="wp-block-heading">SELLER RESISTANCE:</h2>
<p>Sellers are sometimes reluctant to voluntarily offer this information up front. Why? There are four common reasons.</p>
<p>1. Some Sellers think they should not volunteer anything. That maybe the Buyer will forget to ask for that “one document” that reveals a defect, thereby enabling the Seller to “get away with” selling the property without addressing the issue.</p>
<p>If this is the thinking, it is naive and short sighted. What is more likely to happen is that the Buyer will discover the defect during its due diligence investigation and will either terminate the transaction or demand a significant price concession under the threat of contract termination. On the other hand, it has been my experience that if the defect is disclosed at the outset, when the Buyer is enthusiastically formulating the project concept, resolution of the issue may be factored into the Buyer’s development plan and never again become a major transaction issue.</p>
<p>2. Another reason I hear is that the Seller does not wish to prematurely spend the money to put the due diligence materials together “in case the transaction falls apart”. The Seller is concerned with “<em>wasting money</em>“.</p>
<p>My response to this is two-fold: i) If the Seller is committed to Selling the property, the expenditure is not wasted even if the current transaction fails because most of the information will be useful when the next Buyer comes along; and ii) the benefit of facilitating Buyer’s due diligence and accelerating Closing will often far exceed the carrying cost of compiling this information in advance. Besides, the sooner you can get to Closing, the more likely the transaction is to close.</p>
<p>3. A variation of the “<em>money</em>” theme is the notion that once a Buyer spends large amounts of money performing due diligence the Buyer becomes committed to the deal and is more likely to Close.</p>
<p>This may occasionally be true, but experience shows that most Buyers will consider due diligence expenses to be <a title="Definition of "Sunk Costs"" href="http://www.investopedia.com/terms/s/sunkcost.asp" target="_blank" rel="noopener">sunk costs</a> and walk away rather than throw good money away chasing a bad deal. The result is that the property may then need to go back on the market to start from square one. If this happens more than once, the property may gain an reputation as a “problem property”, thereby depressing its value in the marketplace.</p>
<p>4. The best reason I hear (usually from other lawyers) is that volunteering this information risks exposing Seller to liability on a theory of Seller implicitly warranting the accuracy of the contents of the Due Diligence Binder.</p>
<p>My response is that it only takes a little bit of creative draftsmanship to mitigate this risk. Further, preparing and offering a well-constructed Due Diligence Binder documents Seller’s deliveries and positions the Seller to avoid most contractual warranties, thereby reducing Seller’s exposure to liability.</p>
<h2 class="wp-block-heading">WHAT ARE THE ADVANTAGES TO SELLER?</h2>
<p>If you are a Seller of Commercial or Industrial Real Estate and conscientiously follow the recommendations outlined above, your transaction will proceed more smoothly and quickly, the likelihood of Closing will increase, and you will save money by avoiding the need to renegotiate issues that should have been addressed at the outset of the transaction.</p>
<p>To be sure, other issues will arise. They always do. But your chances of proceeding to Closing on-time and on-budget will greatly increase if you make the effort to be as close to a Perfect Seller as possible.</p>
<p><em>Thanks for listening,</em></p>
<p><em> R. Kymn Harp</em></p>
<p>PS. If you are a commercial real estate broker, I encourage you to discuss with your Seller the strategy outlined in this post the moment the property is listed for sale. Print this post, or send your Seller a link to this post if you wish. I assure you, if your Seller follows the advice in this article, everyone will benefit.</p>
<p>Kymn</p>
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<title>Commercial Real Estate Due Diligence – Do You Know the Four Areas of Inquiry?</title>
<link>http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/</link>
<comments>http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 12 May 2014 23:00:34 +0000</pubDate>
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<description><![CDATA[  Albert Einstein:           “Everything should be made as simple as possible, but not simpler.”   Commercial Real Estate Due Diligence – the Four Areas of Inquiry I’m a big fan of Albert Einstein. He’s one of my intellectual heroes.  He […]]]></description>
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<h4 class="wp-block-heading"> </h4>
<h4 class="wp-block-heading">Albert Einstein: <i>“Everything should be made as simple as possible, but not simpler.”</i></h4>
<h2 class="wp-block-heading"> </h2>
<h2 class="wp-block-heading">Commercial Real Estate Due Diligence – the Four Areas of Inquiry</h2>
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<figure class="alignleft"><a href="http://harp-onthis.com/business/due-diligence-checklists-for-commercial-real-estate-transactions/"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="124" data-attachment-id="120" data-permalink="http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/cropped-dreamstime_m_4416964-jpg/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?fit=999%2C413" data-orig-size="999,413" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Svanhorn4245 | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/stock-images-due-diligence-image4416964"}" data-image-title="cropped-dreamstime_m_4416964.jpg" data-image-description="<p>http://harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?fit=300%2C124" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?fit=999%2C413" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?resize=300%2C124" alt="cropped-dreamstime_m_4416964.jpg" class="wp-image-120" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?resize=300%2C124 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?resize=500%2C206 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?w=999 999w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>I’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.</p>
<p>Real estate due diligence requires insight as well. To find the answers, you must </p>
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<p>know the questions.</p>
<p>Of course, I’m no Albert Einstein but, then, real estate due diligence is not inter-galactic science.</p>
<p>The term itself is confusing. “<em>Due diligence</em>” is used grammatically like it’s a thing or a process. “<i>We need to complete our due diligence</i>”; or “<i>Let me review your due diligence”</i>; or “<i>due diligence is expensive</i>”. I admit, I use it the same way.</p>
<p>In fact, however, “due diligence” is a standard of conduct. Due diligence refers to the degree of diligence we should exercise to investigate and analyze all important issues facing a particular transaction. That is to say, the degree of diligence that is <em>“due”</em> under the circumstances.</p>
<p> This definition has two important components:</p>
<!--more-->
<ol class="wp-block-list">
<li>a focus on “<em>important issues</em>”; and</li>
<li>the degree of diligence appropriate under the circumstances of the particular transaction.</li>
</ol>
<p>The art of the deal, so to speak, is in understanding what is “<em>important</em>” and what degree of investigation is due.</p>
<p>Failure to accurately identify these two threshold considerations will lead to one of two outcomes. The due diligence investigation will be either: (1) incomplete – and therefore ineffective to discover and resolve the important transaction risks it is intended to protect against; or (2) overly broad – in which case it will be more time-consuming and expensive than it needs to be. Either way, its value is diminished.</p>
<p>Due diligence can be expensive. We need to avoid making it more expensive than necessary.</p>
<p>So, how do we make sure we get full value for our due diligence dollars? By making sure we know the right questions to ask, and then answering them.</p>
<p>This requires two preliminary sets of questions:</p>
<p> <i>First</i>: What is the vision for this property? Why is it being acquired, and how will it be used?</p>
<p> <i>Second</i>: What is necessary to be known in order to confirm the vision can be fulfilled?</p>
<p>To be sure, we must know the <i>first</i> to answer the <i>second</i>. It is in answering the second that due diligence must be exercised.</p>
<p>For guidance, please review: “<a title="DUE DILIGENCE CHECKLISTS for Commercial Real Estate Transactions" href="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/" target="_blank" rel="noopener"><i>Due Diligence Checklists for Commercial Real Estate Transactions</i></a>”.</p>
<h2 class="wp-block-heading">For commercial real estate, there are four principal areas of concern:</h2>
<ol class="wp-block-list">
<li> Market Demand</li>
<li> Access</li>
<li> Use</li>
<li> Finances</li>
</ol>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1878" data-permalink="http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/youngprofessionaldrawingagrowingrealestatechart-concretebackground/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?fit=1000%2C795" data-orig-size="1000,795" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2014 ImageFlow\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Young,Professional,Drawing,A,Growing,Real,Estate,Chart.,Concrete,Background.","orientation":"0"}" data-image-title="Young,Professional,Drawing,A,Growing,Real,Estate,Chart.,Concrete,Background." data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?fit=300%2C239" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?fit=1000%2C795" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?resize=400%2C317" alt="young professional drawing a growing real estate chart" class="wp-image-1878" width="400" height="317" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?resize=300%2C239 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?resize=768%2C611 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Once the vision is clear, addressing these four areas of concern will determine whether that vision can be fulfilled. Within these four areas of concern we will find all the questions that need to be asked and answered to determine the feasibility of any commercial real estate transaction or project. How straightforward is that?</p>
<p>So what do these areas of concern entail? In simple terms, they can be summarized by a description of the inquiry they present.</p>
<h2 class="wp-block-heading">1. Market Demand</h2>
<p><em>Market demand</em> asks this question: Is the proposed project needed or wanted by target consumers in the geographic area within which the property is located?</p>
<p>Market demand is the most fundamental of the four aspects of commercial real estate. If there is no market demand, the transaction or project should not go forward. If you are developing, financing or investing in a real estate project, make sure there is market demand for what is being offered. If you are a strategic user intending to occupy and use the property yourself, market demand may be satisfied by your own business needs. If you are investing on speculation, be sure you know the demand of your intended market.</p>
<p>Determining market demand seldom involves a legal question. No attorney time is necessary. [<em>See? I’m saving you money already</em>.]
<h2 class="wp-block-heading"><b>2. Access</b></h2>
<p><em>Access</em> asks this question: Assuming adequate market demand to justify the proposed transaction or project, can target consumers seeking the goods or services to be offered at or from the property get to it with ease? This aspect includes evaluation of:</p>
<ul class="wp-block-list">
<li>existing or proposed highways, streets, and drives that will serve the site;</li>
<li>availability of in-and-out curb cuts for consumers and for delivery trucks and vans;</li>
<li>vehicular traffic flow to, from, and within the project site;</li>
<li>volume and convenience of pedestrian traffic;</li>
<li>ability of the project to accommodate the needs of the disabled in a manner compliant with Title III of the Americans with Disabilities Act (ADA), 42 U.S.C. §12181, et seq.;</li>
<li>adequacy of available parking (which, for business reasons, may need to be greater than the minimum required for zoning);</li>
<li>availability of public transportation; <em>and</em></li>
<li>all other factors that may affect the flow of consumers and users to and from the site.</li>
</ul>
<h2 class="wp-block-heading"><b> 3. Use </b></h2>
<p><em>Use</em> asks this question: Can the property be used as intended? This aspect includes an inquiry into:</p>
<ul class="wp-block-list">
<li>applicable zoning and private land use controls;</li>
<li>availability of utilities;</li>
<li>internet/social-network connectivity and availability of telecommunications;</li>
<li>site topography;</li>
<li>quality of soil compaction to enable improvement using cost-effective methods of construction;</li>
<li>evaluation of the environmental condition of the property to determine whether environmental impediments exist that would prevent use of the property as intended absent remediation, institutional controls or environmental impact mitigation; <em>and</em></li>
<li>all other factors that may prevent the site from being used as inte<b>nded. </b></li>
</ul>
<h2 class="wp-block-heading"> 4. Finances</h2>
<p><em>Finances</em> asks these questions: (a) Can funds be obtained to acquire, construct, and operate the project? <i>and </i>(b) Will the investor receive an adequate return on investment to justify proceeding with the transaction or project?</p>
<p>To answer these questions we must know the cost of acquisition or development and the net operating income and capital recovery expected to be generated by the project.</p>
<p>We must determine whether costly environmental remediation or institutional controls will be required; the amount of applicable user fees; environmental impact mitigation costs, if any; real estate taxes; special assessments; tenant allowance or build-out requirements; and all other factors having an economic impact.</p>
<p>Although finances are primarily a business concern, certain aspects of project finance do fall within the realm of legal due diligence. Thus the reference to one-half of the Finances concern being within the realm of attorney conducted due diligence.</p>
<p>Documentation of equity investments and project loans, as well as hybrids such as mezzanine financing, demand the attention of legal counsel.</p>
<p>If the property is leased, an evaluation of the amount, velocity and durability of the revenue stream and any financial commitments of the owner/landlord are often considered by counsel.</p>
<p>Certainly, if public money is sought to reduce the net cost of development, legal counsel is required.</p>
<h2 class="wp-block-heading"><b>Other Due Diligence Concerns</b></h2>
<p>The four areas of concern described above pertain to the “<em>real estate</em>” aspects of the transaction. If you are dealing with commercial real estate, your due diligence must focus on these issues.</p>
<p>Every capital transaction has other due diligence concerns as well. These other concerns are beyond the scope of this post, but may include issues pertaining to entity structure, authority of the parties, income and capital gains taxation and tax deferments, securities, and the overall structure of the transaction, to name just a few.</p>
<p>Commercial real estate due diligence is not rocket science but . . .</p>
<p> . . . it certainly helps if you know what you’re looking for.</p>
<p class="has-text-align-center"> Thanks for listening! <i> </i></p>
<p><i> Kymn</i></p>
<p> </p>
]]></content:encoded>
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<item>
<title>DUE DILIGENCE CHECKLISTS – for Commercial Real Estate Transactions</title>
<link>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/</link>
<comments>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Tue, 26 Nov 2013 14:10:51 +0000</pubDate>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[lending]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[bank]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[lenders]]></category>
<category><![CDATA[loans]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=35</guid>
<description><![CDATA[Are you planning to purchase, finance or develop any of the following types of Commercial or Industrial Real Estate? A KEY element to successfully investing in commercial or industrial real estate is performing an adequate Due Diligence Investigation prior to […]]]></description>
<content:encoded><![CDATA[
<h2 class="wp-block-heading">Are you planning to purchase, finance or develop any of the following types of Commercial or Industrial Real Estate?</h2>
<ul class="wp-block-list">
<li>• Shopping Center?</li>
<li>• Office Building?</li>
<li>• Large Multifamily residential?</li>
<li>• Parking Lot/Parking garage?</li>
<li>• Retail Store?</li>
<li>• Mixed-Use?</li>
<li>• Restaurant/Banquet property?</li>
<li>• Sports and Entertainment Venue?</li>
<li>• Intermodal Logistics Terminal?</li>
<li>• Medical Building?</li>
<li>• Gas Station?</li>
<li>• Distribution Center?</li>
<li>• Manufacturing facility?</li>
<li>• Pharmacy?</li>
<li>• Special Use facility ?</li>
<li>• Other?</li>
</ul>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" class="wp-image-1041" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>A KEY element to successfully investing in commercial or industrial real estate is performing an adequate Due Diligence Investigation prior to becoming legally bound to acquire the property. An adequate Due Diligence Investigation will assure awareness of all material facts relevant to the intended use or disposition of the property after closing.</p>
<p> The following checklists will help you conduct a focused and meaningful Due Diligence Investigation.</p>
<h2 class="wp-block-heading"> BASIC DUE DILIGENCE CONCEPTS</h2>
<h3 class="wp-block-heading"> Caveat Emptor: Let the Buyer beware.</h3>
<p>Consumer protection laws applicable to home purchases seldom apply to commercial real estate transactions. The rule that a Buyer must examine, judge, and test for himself, applies to the purchase of commercial real estate.</p>
<h3 class="wp-block-heading">Due Diligence:</h3>
<p>“Such a measure of prudence, activity, or assiduity, as is proper to be expected from, and ordinarily exercised by, a reasonable and prudent (person) under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the special case.” Black’s Law Dictionary; West Publishing Company.</p>
<p>Contractual representations and warranties are NOT a substitute for Due Diligence. Breach of representations and warranties = Litigation, time and $$$$$.</p>
<p>The point of commercial real estate due diligence is to avoid transaction surprises and confirm the Property can be used as intended.</p>
<h2 class="has-text-align-center wp-block-heading"> WHAT DILIGENCE IS DUE?</h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1883" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/folderwiththelabelduediligence/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?fit=1000%2C662" data-orig-size="1000,662" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2014 Zerbor\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Folder,With,The,Label,Due,Diligence","orientation":"0"}" data-image-title="Folder,With,The,Label,Due,Diligence" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?fit=1000%2C662" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?resize=400%2C265" alt="folder with the label due diligence" class="wp-image-1883" width="400" height="265" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?resize=768%2C508 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>The scope, intensity and focus of any Due Diligence Investigation of commercial or industrial real estate depends upon the objectives of the party for whom the investigation is conducted. These objectives may vary depending upon whether the investigation is conducted for the benefit of: (i) a Strategic Buyer (or long-term lessee); (ii) a Financial Buyer; (iii) a Developer; or (iv) a Lender.</p>
<p>If you are a Seller, understand that to close the transaction your Buyer and its Lender must address all issues material to their respective objectives – some of which require information only you, as Owner, can adequately provide.</p>
<h3 class="wp-block-heading">GENERAL OBJECTIVES:</h3>
<p> (i) A “Strategic Buyer” (or long-term lessee) is acquiring the property for its own use and must verify that the property is suitable for that intended use.</p>
<p> (ii) A “Financial Buyer” is acquiring the property for the expected return on investment generated by the property’s anticipated revenue stream, and must determine the amount, velocity and durability of the revenue stream. A sophisticated Financial Buyer will likely calculate its yield based upon discounted cash-flows rather than the much less precise capitalization rate (“Cap. Rate”), and will need adequate financial information to do so.</p>
<p> (iii) A “Developer” is seeking to add value by changing the character or use of the property – usually with a short-term to intermediate-term exit strategy to dispose of the property; although, a Developer might plan to hold the property long term as a Financial Buyer after development or redevelopment. The Developer must focus on whether the planned change in character or use can be accomplished in a cost-effective manner.</p>
<p> (iv) A “Lender” is seeking to establish two basic lending criteria:</p>
<p> (1) “<em>Ability to Repay</em>” – The ability of the property to generate sufficient revenue to repay the loan on a timely basis; <em>and</em></p>
<p> (2) “<em>Sufficiency of Collateral</em>” – The objective disposal value of the collateral in the event of a loan default, to assure adequate funds to repay the loan, carrying costs and costs of collection in the event forced collection becomes necessary.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="199" data-attachment-id="614" data-permalink="http://harp-onthis.com/perfect-seller/questions-and-answers-signpost/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1699%2C1130" data-orig-size="1699,1130" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"Concept image of the six most common questions and answers on a signpost.","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"Questions and Answers signpost"}" data-image-title="Questions and Answers signpost" data-image-description="<p>Concept image of the six most common questions and answers on a signpost.</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1024%2C681" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199" alt="Questions and Answers signpost" class="wp-image-614" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=1024%2C681 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=451%2C300 451w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?w=1699 1699w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>The amount of diligent inquiry due to be expended (i.e. “Due Diligence”) to investigate any particular commercial or industrial real estate project is the amount of inquiry required to answer each of the following questions to the extent relevant to the objectives of the party conducting the investigation:</p>
<h2 class="wp-block-heading">I. THE PROPERTY:</h2>
<p> 1. Exactly what PROPERTY does Purchaser believe it is acquiring?</p>
<p>• Land?</p>
<p>• Building?</p>
<p>• Fixtures?</p>
<p>• Other Improvements?</p>
<p>• Other Rights?</p>
<p>• The entire fee title interest including all air rights and subterranean rights?</p>
<p>• All development rights?</p>
<p> 2. What is Purchaser’s planned use of the Property?</p>
<p> 3. Does the physical condition of the Property permit use as planned?</p>
<p>• Commercially adequate access to public streets and ways?</p>
<p>• Sufficient parking?</p>
<p>• Structural condition of improvements?</p>
<p>• Environmental contamination?</p>
<p>• Innocent Purchaser defense vs. exemption from liability</p>
<p>• All Appropriate Inquiry</p>
<p> 4. Is there any legal restriction to Purchaser’s use of the Property as planned?</p>
<p>• Zoning?</p>
<p>• Private land use controls?</p>
<p>• Americans with Disabilities Act?</p>
<p>• Availability of licenses?</p>
<p>• Liquor license?</p>
<p>• Entertainment license?</p>
<p>• Outdoor dining license?</p>
<p>• Drive through windows permitted?</p>
<p>• Other impediments?</p>
<p> 5. How much does Purchaser expect to pay for the property?</p>
<p> 6. Is there any condition on or within the Property that is likely to increase Purchaser’s effective cost to acquire or use the Property?</p>
<p>• Property owner’s assessments?</p>
<p>• Real estate tax in line with value?</p>
<p>• Special Assessment?</p>
<p>• Required user fees for necessary amenities?</p>
<p>• Drainage?</p>
<p>• Access?</p>
<p>• Parking?</p>
<p>• Other?</p>
<p> 7. Any encroachments onto the Property, or from the Property onto other lands?</p>
<p> 8. Are there any encumbrances on the Property that will not be cleared at Closing?</p>
<p>• Easements?</p>
<p>• Covenants Running with the Land?</p>
<p>• Liens or other financial servitudes?</p>
<p>• Leases?</p>
<p>9. If the Property is subject to any Leases, are there any:</p>
<p>• Security Deposits?</p>
<p>• Options to Extend Term?</p>
<p>• Options to Purchase?</p>
<p>• Rights of First Refusal?</p>
<p>• Rights of First Offer?</p>
<p>• Maintenance Obligations?</p>
<p>• Duty of Landlord to provide utilities?</p>
<p>• Real estate tax or CAM escrows?</p>
<p>• Delinquent rent?</p>
<p>• Pre-Paid rent?</p>
<p>• Tenant mix/use controls?</p>
<p>• Tenant exclusives?</p>
<p>• Tenant parking requirements?</p>
<p>• Automatic subordination of Lease to future mortgages?</p>
<p>• Other material Lease terms?</p>
<p>10. New Construction?</p>
<p>• Availability of construction permits?</p>
<p>• Soil conditions?</p>
<p>• Utilities?</p>
<p>• NPDES (National Pollutant Discharge Elimination System) Permit?</p>
<p>• Permit required if earth is disturbed on one acre or more of land.</p>
<p>• If applicable, Storm Water Pollution Prevention Plan (SWPPP) is required.</p>
<h2 class="wp-block-heading">II. THE SELLER:</h2>
<p>1. Who is the Seller?</p>
<p>• Individual?</p>
<p>• Trust?</p>
<p>• Partnership?</p>
<p>• Corporation?</p>
<p>• Limited Liability Company?</p>
<p>• Other legally existing entity?</p>
<p>2. If other than natural person, does Seller validly exist and is Seller in good standing?</p>
<p>3. Does the Seller own the Property?</p>
<p>4. Does Seller have authority to convey the Property?</p>
<p>• Board of Director Approvals?</p>
<p>• Shareholder or Member approval?</p>
<p>• Other consents?</p>
<p>• If foreign individual or entity, are any special requirements applicable?</p>
<p>• Qualification to do business in jurisdiction of Property?</p>
<p>• Federal Tax Withholding?</p>
<p>• US Patriot Act compliance?</p>
<p>5. Who has authority to bind Seller?</p>
<p>6. Are sale proceeds sufficient to pay off all liens?</p>
<h2 class="wp-block-heading">III. THE PURCHASER:</h2>
<p>1. Who is the Purchaser?</p>
<p>2. What is the Purchaser/Grantee’s exact legal name?</p>
<p>3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?</p>
<p>• Articles or Incorporation – Articles of Organization</p>
<p>• Certificate of Good Standing</p>
<p>4. Is Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property?</p>
<p>• Board of Director Approvals?</p>
<p>• Shareholder or Member approval?</p>
<p>• If foreign individual or entity, are any special requirements applicable?</p>
<p>• Qualification to do business in jurisdiction of the Property?</p>
<p>• US Patriot Act compliance?</p>
<p>• Bank Secrecy Act/Anti-Money Laundering compliance?</p>
<p>5. Who is authorized to bind the Purchaser/Grantee?</p>
<h2 class="wp-block-heading">IV. PURCHASER FINANCING:</h2>
<h3 class="wp-block-heading">A. BUSINESS TERMS OF THE LOAN:</h3>
<p>1. What loan terms have the Borrower and its Lender agreed to?</p>
<p>• What is the amount of the loan?</p>
<p>• What is the interest rate?</p>
<p>• What are the repayment terms?</p>
<p>• What is the collateral?</p>
<p>• Commercial real estate only?</p>
<p>• Real estate and personal property together?</p>
<p>• First lien?</p>
<p>• A junior lien?</p>
<p>• Is it a single advance loan?</p>
<p>• A multiple advance loan?</p>
<p>• A construction loan?</p>
<p>• If it is a multiple advance loan, can the principal be re-borrowed once repaid prior to maturity of the loan; making it, in effect, a revolving line of credit?</p>
<p>• Are there reserve requirements?</p>
<p>• Interest reserves?</p>
<p>• Repair reserves?</p>
<p>• Real estate tax reserves?</p>
<p>• Insurance reserves?</p>
<p>• Environmental remediation reserves?</p>
<p>• Other reserves?</p>
<p>2. Are there requirements for Borrower to open business operating accounts with the Lender? If so, is the Borrower obligated to maintain minimum compensating balances?</p>
<p>3. Is the Borrower required to pledge business accounts as additional collateral?</p>
<p>4. Are there early repayment fees or yield maintenance requirements (each sometimes referred to as “pre-payment penalties”)?</p>
<p>5. Are there repayment blackout periods during which Borrower is not permitted to repay the loan?</p>
<p>6. Is a profit participation payment to Lender required upon disposition?</p>
<p>7. Is there a Loan Commitment fee or “good faith deposit” due upon Borrower’s acceptance of the Loan Commitment?</p>
<p>8. Is there a loan funding fee or loan brokerage fee or other loan fee due Lender or a loan broker at closing?</p>
<p>9. What are the Borrower’s expense reimbursement obligations to Lender? When are they due? What is the Borrower’s obligation to pay Lender’s expenses if the loan does not close?</p>
<h3 class="wp-block-heading">B. DOCUMENTING THE COMMERCIAL REAL ESTATE LOAN</h3>
<p>Does Purchaser have all information necessary to comply with the Lender’s loan closing requirements?</p>
<p>Not all loan documentation requirements may be known at the outset of a transaction, although most commercial real estate loan documentation requirements are fairly typical. Some required information can be obtained only from the Seller. Production of that information to Purchaser for delivery to its lender must be required in the purchase contract.</p>
<p>As guidance to what a commercial real estate lender may require, the following sets forth a typical Closing Checklist for a loan secured by commercial real estate.</p>
<h2 class="wp-block-heading">Commercial Real Estate Loan Closing Checklist</h2>
<p>1. Promissory Note</p>
<p>2. Personal Guaranties (which may be full, partial, secured, unsecured, payment guaranties, collection guaranties or a variety of other types of guarantees as may be required by Lender)</p>
<p>3. Loan Agreement (often incorporated into the Promissory Note and/or Mortgage in lieu of being a separate document)</p>
<p>4. Mortgage (sometimes expanded to be a Mortgage, Security Agreement and Fixture Filing)</p>
<p>5. Assignment of Rents and Leases.</p>
<p>6. Security Agreement</p>
<p>7. Financing Statement (sometimes referred to as a “UCC-1”, or “Initial Filing”).</p>
<p>8. Evidence of Borrower’s Existence In Good Standing; including :</p>
<p>(a) Certified copy of organizational documents of borrowing entity (including Articles of Incorporation, if Borrower is a corporation; Articles of Organization and written Operating Agreement, if Borrower is a limited liability company; certified copy of trust agreement with all amendments, if Borrower is a land trust or other trust; etc.)</p>
<p>(b) Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if a limited partnership) or Certificate of Qualification to Transact Business (if Borrower is an entity doing business in a State other than its State of formation)</p>
<p>9. Evidence of Borrower’s Authority to Borrow; including:</p>
<p>(a) Borrower’s Certificate</p>
<p>(b) Certified Resolutions</p>
<p>(c) Incumbency Certificate</p>
<p>10. Satisfactory Commitment for Title Insurance (which will typically require, for analysis by the Lender, copies of all documents of record appearing on Schedule B of the title commitment which are to remain after closing), with required commercial title insurance endorsements, often including:</p>
<p>(a) ALTA 3.1 Zoning Endorsement modified to include parking [although if the property is a multi-user property, such as a retail shopping center, an ALTA 3.0 Zoning Endorsement may be appropriate]
<p>(b) ALTA Comprehensive Endorsement 1</p>
<p>(c) Location Endorsement (street address)</p>
<p>(d) Access Endorsement (vehicular access to public streets and ways)</p>
<p>(e) Contiguity Endorsement (the insured land comprises a single parcel with no gaps or gores)</p>
<p>(f) PIN Endorsement (insuring that the identified real estate tax permanent index numbers are the only applicable PIN numbers affecting the collateral and that they relate solely to the real property comprising the collateral)</p>
<p>(g) Usury Endorsement (insuring that the loan does not violate any prohibitions against excessive interest charges)</p>
<p>(h) other title insurance endorsements applicable to protect the intended use and value of the col- lateral, as may be determined upon review of the Commitment for Title Insurance and Survey or arising from the existence of special issues pertaining to the transaction or the Borrower.</p>
<p>11. Current ALTA/ACSM Land Title Survey (3 sets), prepared in accordance with the 2011 (or current) Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys</p>
<p>12. Current Rent Roll</p>
<p>13. Certified copy of all Leases (4 sets – 1 each for Buyer, Buyer’s attorney, Title Company and Lender)</p>
<p>14. Lessee Estoppel Certificates</p>
<p>15. Lessee Subordination, Non-Disturbance and Attornment Agreements [sometimes referred to simply as “SNDAs”]
<p>16. UCC, Judgment, Pending Litigation, Bankruptcy and Tax Lien Search Report</p>
<p>17. Appraisal -complying with Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended)</p>
<p>18. Environmental Site Assessment Report (sometimes referred to as Environmental Phase I and/or Phase 2 Audit Reports)</p>
<p>19. Environmental Indemnity Agreement (signed by Borrower and guarantors)</p>
<p>20. Site Improvements Inspection Report</p>
<p>21. Evidence of Hazard Insurance naming Lender as the Mortgagee/Lender Loss Payee; and Liability Insurance naming Lender as an “additional insured” (sometimes listed as simply “Acord 27 and Acord 25, respectively)</p>
<p>22. Legal Opinion of Borrower’s Attorney</p>
<p>23. Credit Underwriting documents, such as signed tax returns, property operating statements, etc. as may be specified by Lender</p>
<p>24. Compliance Agreement (sometimes also called an Errors and Omissions Agreement), whereby the Borrower agrees to correct, after closing, errors or omissions in loan documentation.</p>
<p class="has-text-align-center">* * * * *</p>
<p>It is useful to become familiar with the Lender’s loan documentation requirements as early in the transaction as practical. The requirements will likely be set forth with some detail in the lender’s Loan Commitment – which is typically much more detailed than most loan commitments issued in residential transactions.</p>
<p>Conducting the Due Diligence Investigation in a commercial real estate transaction can be time consuming and expensive in all events.</p>
<p>If the loan requirements cannot be satisfied, it is better to make that determination during the contractual “due diligence period” – which typically provides for a so-called “free out” – rather than at a later date when the earnest money may be at risk of forfeiture or when other liability for failure to close may attach.</p>
<h3 class="wp-block-heading">CONCLUSION</h3>
<p>Conducting an effective Due Diligence Investigation in a commercial or industrial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance.</p>
<p>Unlike owner occupied residential real estate, when a house can nearly always be occupied as the purchaser’s home, commercial and industrial real estate acquired for business use or for investment is impacted by numerous factors that may limit its use and value.</p>
<p>The existence of these factors and their impact on a Purchaser’s ability to use the Property as intended can only be discovered through diligent and focused investigation and attention to detail.</p>
<p>Exercise Due Diligence.</p>
<p>If you need assistance, please ask for help.</p>
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<title>10 THINGS EVERY BUYER NEEDS TO CLOSE A COMMERCIAL REAL ESTATE LOAN</title>
<link>http://harp-onthis.com/10-things-every-buyer-needs-to-close-a-commercial-real-estate-loan/</link>
<comments>http://harp-onthis.com/10-things-every-buyer-needs-to-close-a-commercial-real-estate-loan/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 23 Oct 2013 10:00:47 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[bankers]]></category>
<category><![CDATA[banks]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[documentation]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[lenders]]></category>
<category><![CDATA[lending]]></category>
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<description><![CDATA[Commercial Real Estate Closings Since 1978, I have represented borrowers and lenders in commercial real estate transactions. Throughout the process of negotiating the sale contract, all parties must keep their eye on what the Buyer’s lender will reasonably require as a […]]]></description>
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<h2 class="wp-block-heading">Commercial Real Estate Closings</h2>
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<p>Since 1978, I have represented borrowers and lenders in commercial real estate transactions. Throughout the process of negotiating the sale contract, all parties must keep their eye on what the Buyer’s lender will reasonably require as a condition to financing the purchase. This may not be what the parties want to focus on, but if this aspect of the transaction is ignored, the deal may not close at all.</p>
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<p>Sellers and their agents often express the attitude that the Buyer’s financing is the Buyer’s problem, not theirs. Perhaps, but facilitating Buyer’s financing should certainly be of interest to Sellers. How many sale transactions will close if the Buyer cannot get financing?</p>
<p>This is not to suggest that Sellers should intrude upon the relationship between the Buyer and its lender, or become actively involved in obtaining Buyer’s financing. It does mean, however, that the Seller should understand what information concerning the property the Buyer will need to produce to its lender to obtain financing, and that Seller should be prepared to fully cooperate with the Buyer in all reasonable respects to produce that information.</p>
<h2 class="wp-block-heading">Basic Lending Criteria</h2>
<p>Lenders actively involved in making loans secured by commercial real estate typically have the same or similar documentation requirements. Unless these requirements can be satisfied, the loan will not be funded. If the loan is not funded, the sale transaction will not likely close.</p>
<p> For Lenders, the object, always, is to establish two basic lending criteria:</p>
<p> 1. The ability of the borrower to repay the loan; and</p>
<p> 2. The ability of the lender to recover the full amount of the loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, in the event the borrower fails to repay the loan.</p>
<p>In nearly every loan of every type, these two lending criteria form the basis of the lender’s willingness to make the loan. Virtually all documentation in the loan closing process points to satisfying these two criteria. There are other legal requirements and regulations requiring lender compliance, but these two basic lending criteria represent, for the lender, what the loan closing process seeks to establish. They are also </p>
<span id="more-182"></span>
<p>a primary focus of bank regulators, such as the FDIC in verifying that the lender is following safe and sound lending practices.</p>
<p>Great ability to repay may allow for the borrower to obtain a greater loan to value ratio on a particular loan, or may allow a borrower to obtain a tighter debt coverage ratio for a particular project, and may even result in a lower interest rate on a loan because of a lower perceived risk of default, but it will seldom result in lender accepting inadequate collateral resulting in a loan which is even partially unsecured. This may not be always true, but it is usually true.</p>
<p>Few lenders engaged in commercial real estate lending are interested in making loans without collateral sufficient to assure repayment of the entire loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, even where the borrower’s independent ability to repay is substantial. As we have seen time and again, changes in economic conditions, whether occurring from ordinary economic cycles, changes in technology, natural disasters, divorce, death, and even terrorist attack or war, can change the “ability” of a borrower to pay. Prudent lending practices require adequate security for any loan of substance.</p>
<h2 class="wp-block-heading"> <b>Documenting the Loan</b></h2>
<p>There is no magic to documenting a commercial real estate loan. There are issues to resolve and documents to draft, but all can be managed efficiently and effectively if all parties to the transaction recognize the legitimate needs of the lender and plan the transaction and the contract requirements with a view toward satisfying those needs within the framework of the sale transaction.</p>
<p>While the credit decision to issue a loan commitment focuses primarily on the ability of the borrower to repay the loan; the loan closing process focuses primarily on verification and documentation of the second stated criteria: confirmation that the collateral is sufficient to assure repayment of the loan, including all principal, accrued and unpaid interest, late fees, attorneys fees and other costs of collection, in the event the borrower fails to voluntarily repay the loan.</p>
<p>With this in mind, most commercial real estate lenders approach commercial real estate closings by viewing themselves as potential “back-up buyers”. They are always testing their collateral position against the possibility that the Buyer/Borrower will default, with the lender being forced to foreclose and become the owner of the property. Their documentation requirements are designed to place the lender, after foreclosure, in as good a position as they would require at closing if they were a sophisticated direct buyer of the property; with the expectation that the lender may need to sell the property to a future sophisticated buyer to recover repayment of their loan.</p>
<h2 class="wp-block-heading"><b>Top 10 Lender Deliveries</b></h2>
<p><b> </b>In documenting a commercial real estate loan, the parties must recognize that virtually all commercial real estate lenders will require, among other things, delivery of the following “<em>property documents</em>“:</p>
<ol class="wp-block-list">
<li>Operating Statements for the past 3 years reflecting income and expenses of operations, including cost and timing of scheduled capital improvements.</li>
<li>Certified copies of all Leases.</li>
<li>A Certified Rent Roll as of the date of the Purchase Contract, and again as of a date within 2 or 3 days prior to closing.</li>
<li>Estoppel Certificates signed by each tenant (or, typically, tenants representing 90% of the leased GLA in the project) dated within 15 days prior to closing;</li>
<li>Subordination, Non-Disturbance and Attornment (“SNDA”) Agreements signed by each tenant;</li>
<li>An ALTA lender’s title insurance policy with required endorsements, including, among others, an ALTA 3.1 Zoning Endorsement (modified to include parking and loading, if applicable) [or if a multi-tenant property, an ALTA 3.0 Zoning Endorsement (modified to include parking), ALTA Endorsement No. 4 (Contiguity Endorsement insuring the mortgaged property constitutes a single parcel with no gaps or gores), and ALTA Access Endorsement No. 17 (insuring that the mortgaged property has access to public streets and ways for vehicular and pedestrian traffic);</li>
<li>Copies of all documents of record which are to remain as encumbrances following closing, including all easements, restrictions, party-wall agreements and other similar items;</li>
<li>A current Plat of Survey prepared in accordance with 2016 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys certified to the lender, Buyer and the title insurer, including items 1 through 4, 6(b), 7(a), 7(b)(1), 8 through 10(a) and 14 from the Surveyor’s “Optional Survey Responsibilities and Specifications” referred to as “Table A”;</li>
<li>A satisfactory Environmental Site Assessment (Phase I Audit) and, if appropriate under the circumstances, a Phase 2 Audit, prepared in accordance with ASTM Standard E1527-13, to demonstrate the property is not burdened with any recognized environmental defect; and</li>
<li>A Property Condition Assessment Report, ideally prepared in accordance with ASTM Standard E2018-15, to evaluate the structural integrity of improvements and general physical condition of the property.</li>
</ol>
<p>To be sure, there will be other requirements and deliveries the Buyer will be expected to satisfy as a condition to obtaining funding of the purchase money loan, but the items listed above are virtually universal. If the parties do not draft the purchase contract to accommodate timely delivery of these items to lender, the chances of closing the transaction are greatly reduced.</p>
<h2 class="wp-block-heading"><b>Planning for Closing Costs</b></h2>
<p>The closing process for commercial real estate transactions can be expensive. In addition to drafting the Purchase Contract to accommodate the documentary requirements of the Buyer’s lender, the Buyer and his advisors need to consider and adequately plan for the high cost of bringing a commercial real estate transaction from contract to closing.</p>
<p>If competent Buyer’s counsel and competent lender’s counsel work together, each understanding what is required to be done to get the transaction closed, the cost of closing can be kept to a minimum, though it will undoubtedly remain substantial. It is not unusual for closing costs for a commercial real estate transaction with even typical closing issues to run thousands of dollars. Buyers must understand this and be prepared to accept it as a cost of doing business.</p>
<p>Sophisticated Buyers understand the costs involved in documenting and closing a commercial real estate transaction and factor them into the overall cost of the transaction, just as they do costs such as the agreed upon purchase price, real estate brokerage commissions, loan brokerage fees, loan commitment fees and the like.</p>
<p>Closing costs can constitute significant transaction expenses and must be factored into the Buyer’s business decision-making process in determining whether to proceed with a commercial real estate transaction. They are inescapable expenditures that add to Buyer’s cost of acquiring commercial real estate. They must be taken into account to determine the “true purchase price” to be paid by the Buyer to acquire any given project and to accurately calculate the anticipated yield on investment.</p>
<p>Some closing costs may be shifted to the Seller through custom or effective contract negotiation, but many will unavoidably fall on the Buyer. These can easily total tens of thousands of dollars in an even moderately sized commercial real estate transaction in the $1,000,000 to $5,000,000 price range.</p>
<p>Costs often overlooked, but ever-present, include title insurance with required lender endorsements, an ALTA Survey, environmental site assessment(s), a Site Improvements Inspection Report and, somewhat surprisingly, Buyers attorney’s fees.</p>
<p>For reasons that escape me, inexperienced Buyers of commercial real estate, and even some experienced Buyers, nearly always underestimate attorneys fees required in any given transaction. This is not because they are unpredictable, since the combined fees a Buyer must pay to its own attorney and to the Lender’s attorney typically aggregate around 1% of the Purchase Price.</p>
<p>This 1% figure consistently rings true, even though attorney’s fees in commercial real estate transactions are typically billed hourly, rather than on a percentage basis. In the hundreds of commercial real estate transactions I have been involved in, I have found that hourly based attorneys’ fees payable by the Buyer/Borrower at closing typically range between .80% and 1.10% of the Purchase price, depending on complexity of the transaction involved. For commercial real estate transactions with a purchase price smaller than $1,000,000, the percentage is typically higher. When the purchase price is higher than about $8,000,000, the percentage is typically smaller. The percentage usually breaks down as follows: Lender’s attorney’s fees (which the Borrower must typically pay) average between .25% and .30% of the loan amount. Fees for Buyer’s attorney usually average between .65% and .85% of the Purchase Price.</p>
<p>Perhaps it stems from wishful thinking associated with the customarily low attorneys’ fees charged by attorneys handling residential real estate closings. In reality, the level of sophistication and the amount of specialized work required to fully investigate and document a transaction for a Buyer of commercial real estate makes comparisons with residential real estate transactions inappropriate. Sophisticated commercial real estate investors understand this. Less sophisticated commercial real estate buyers must learn how to properly budget this cost.</p>
<h2 class="wp-block-heading"><b>Conclusion</b></h2>
<p>Concluding negotiations for the sale/purchase of a substantial commercial real estate project is a thrilling experience but, until the transaction closes, it is only ink on paper. To get to closing, the contract must anticipate the documentation the Buyer will be required to deliver to its lender to obtain purchase money financing. The Buyer must also be aware of the substantial costs to be incurred in preparing for closing so that Buyer may reasonably plan its cash requirements for closing. With a clear understanding of what is required, and advanced planning to satisfy those requirements, the likelihood of successfully closing will be greatly enhanced.</p>
<p> Thanks for listening,</p>
<p> <i>Kymn</i></p>
<p> </p>
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