Tuesday, May 31, 2011

Hosting this week's #CRECHAT on Twitter!

I guess it is time for me to dust off my chat hosting skills -- I can't believe it has been about 13 years since I have done it -- for a good cause!  #CRECHAT on Twitter is a great group of commercial real estate professionals that meets weekly at 1:00 PM (Central time) on Fridays for an hour to discuss issues of the day in the business.  This is the brainchild of my friend Jason Sandquist in Minneapolis, whom I have gotten to know through social media.  I think he is a great and smart guy and really appreciate the effort he has put into #CRECHAT.

This week's topic is "Overcoming Obstacles in Commercial Real Estate Transactions."  Simply put: what are some of the biggest problems out there that you have encountered, and how did you solve the problem for your client or for yourself to make the deal happen?  Was it a person, a thing, a legal problem, a business issue, money or something else? And what steps did you take to make the deal happen?  Or was it a deal that simply "needed killing?" 

I'm looking forward to seeing all of you -- virtually, of course - on Friday!  You can follow using the hashtag #CRECHAT on Twitter, or just go to this website that Jason has graciously set up.

PS: we usually "introduce" ourselves to the group at the beginning of the chat, but I plan to make a twist on the usual introduction with a surprise technological bent.  I think you will enjoy it.

Monday, May 23, 2011

Commercial real estate and social media in 11 words

I have been reading a lot online about so-called social media expertise and all these folks who purport that they can make me a better and more successful lawyer because of their skill at marketing via blogging, Twitter, Facebook and the like.

This isn't to say there aren't a few people out there whom I think have legitimate knowledge and even expertise when it comes to social media.  But I think that, more often than not, the real experts are not so much the ones who advertise themselves as authorities and try to sell you services (again, there are exceptions), but rather the folks out there in the real world who are just doing it.

I do not consider myself a social media expert, guru, ninja, black belt, maven, or anything like that. But I have been at it a long time; longer than most, now that I've thought about it thanks to a recent Twitter exchange.

My blog turned four years old last month without any fanfare.  But my time in social media goes back beyond that.  In the real-time format, my experience with social media goes back to about 1995, when I was on AOL as a young lawyer and hosting regular chats about the OJ Simpson murder trial.  (And yes, I predicted the "not guilty" verdict. Everyone thought I was crazy.)  And I started participating in bulletin boards and online discussion groups back in about 1988 on Prodigy, CompuServ and other boards.  Yes, I feel old.

So, without further ado, here's what I think are the eleven most important words when it comes to social media  for real estate professionals (and, for that matter, just about everyone) based on my years of social media experience:

  • Be yourself. Even though it is the Internet and people (usually) can't see or hear you in real time, people can spot a phony at 100 characters.  Don't pretend to be who you are not or put on some persona.  This isn't Second Life, after all. Don't approach social media as solely a money-making enterprise, because people will figure it out.  Look at it as a way to connect with the world initially without spending your life savings traveling the world.
  • Be genuine. This is a corollary to being yourself.  Again, a BS artist is usually spotted a mile away.  Social media is not about selling things, at least not for me, because I tune out the blatant salesmen pronto.  And don't sugar coat things.  Tell it like it is, as Howard Cosell used to say, although I do like to say things in a nice way whenever possible because that's just genuinely who I am.  And people appreciate honesty, even when it hurts a little; e.g., "Dave, you're really fat, you know."
  • Be generous.  Take an extra minute to help a friend or an acquaintance. You never know when the person needing the help will be you.  Respond to requests for (non-confidential) information, to talk to people or meet them for coffee, lunch, or whatever. 
  • Share.  Give credit to others.  If you have an insight about something, or know or think something the rest of the world ought to know, and it is not confidential or anything, such as a piece of news, your reasoned opinion, or anything, say it.  When I hear about things from different points of view it makes me a better person, which brings me to the educational words. (Also, retweet the good stuff!)
  • Learn.  Guess what?  Social media is not all about you.  It is about you and all the people you interact with and all the people they interact with, and so on ad infinitum.  And you don't know it all.  Take time to learn from others.  You will not regret it, because their collective experiences will blow you away.
  • Teach.  Like sharing and being generous, you need to give back.  We all know a lot about something.  Tell us so we can learn from each other.  But try not to do it in a preachy way.  I remember being in chat rooms many years ago with a certain now-prominent celebrity who thought that s/he was the smartest person in the room, knew more than the rest of us about the law and was going to teach us dummies a lesson.  A lesson was learned, all right.
  • Have fun.  I saved what I think is the best one for last.  Don't treat social media like a job, even if happens to be your job.  By being yourself, being genuine, being generous, sharing, learning and teaching, you should or at least ought to be having a good time at it.  Revel in the collaboration at the keyboard and at all you have taught and learned and experienced.  And then step away from the computer once in a while!  After all, life is too short not to have fun.
I know I am not a high-priced social media consultant, and I am not looking to be one.  But I wanted to share my decades of the social media world with all of you and tell you what has worked for me.  Has social media made me rich and famous? No.  Has it made me smarter, a better lawyer and allowed me to connect with a ton of great people?  Yes, and I'd do it all over again!

Thursday, May 19, 2011

Join us at #CRECHAT tomorrow!

Thanks to the efforts of Jason Sandquist, some of us in the commercial real estate industry who also participate on Twitter are planning a series of weekly chats on the industry at 2 PM Eastern time, starting tomorrow.

You can also follow a feed of the chat here.  I was thinking about playing hooky tomorrow with the nice weather and all, but I do not want to miss the first effort!  (Perhaps the iPad or a laptop in the clubhouse is a good compromise.)

I hope you join us.

Wednesday, May 18, 2011

Commercial real estate and test cricket

That is my current analogy of how the market is performing right now. Why? After looking at this and other similar deals.

In test cricket you play it safe for the long haul. The game is five days long with, typically, two full turns of batting and fielding. (Yes, I am over-simplifying cricket. It isn't the easiest game to understand for us Americans, after all.) So batters tend to try to hit balls that will get them one and two runs, with anything more being gravy. That is what buying a building at a 6-cap is: safe and long-haul.

There are shorter forms of cricket that have become increasingly popular, such as one day games or even three hour formats, known as 20/20 cricket. Here the emphasis is on taking risk and hitting for fours (you score four by hitting the ball to the boundary of the field) and sixes (for hitting beyond the boundary). These deals are still in the works, because they are riskier and harder to underwrite and many institutional investors are, well, okay with singles right now.

The problem is: until the riskier development ideals start getting done again, you have a construction market that is, in a word, moribund. When those workers are back on the job the economy will, in my opinion, improve. Without it? More of the same. There is a lot of space that is vacant, but that is sometimes a function of location and lack of demand at those locations. For instance, are you going to build in the exurbs or in the heart of the city? Fortunately, people are hearing whispers of deals quietly being inked and negotiated, and perhaps next week's ICSC conference in Las Vegas and this week's ULI meeting in Phoenix will give us a little more intelligence on those types of deals.

Monday, May 16, 2011

Summarizing a real estate deal in four letters: RTFD

This is a follow up to my post on why you should call me (or your real estate lawyer) first. Let's be honest, though: it isn't always going to happen.  Why? Time, money, hubris, you name it.  I get that.  I don't like it but I get it.

What really irks me, though, is a corollary to at least two of the five points I made last week; namely, this classic: "Oh, I just signed the document without reading it." And it happens more than I care to admit.

I can hear someone say, well, what about the boilerplate residential loan documents that are uniform and the same for every single deal?  Okay, I understand. But did you confirm the deal terms were correct? What about the HUD-1? Did the Truth-in-Lending Statement change? (That is a no-no these days.) Did you sign a document saying that you are going to own and occupy the house when in fact you are not?

What am I getting at? Read The Friggin' Document.  Maybe it will all make sense and you can at least be informed about what you are doing.  Maybe you will catch a mistake. And maybe, just maybe, you will realize that there are some terms in these documents that you don't understand completely.  At least then you might come to your senses and call someone who can help you. If not, then you'll be calling someone later, most likely after it is too late (or very expensive) to fix the problem.

Wednesday, May 11, 2011

Will BigLaw finally catch up to the rest of us?

I read with great interest Maura O'Connor's recent blog post on re-engineering real estate law.  It was a good post for what it is, except that I had to say to myself: "Isn't it about time the large law firms caught up with the rest of us?"

(Full disclosure: I was, some ten+ years ago, an associate at the Chicago office of Seyfarth Shaw, the firm where Ms. O'Connor is now a partner.  [She came on board after I left, as Seyfarth did not at the time have a real estate practice in its California offices.] I had a wonderful experience there and many of my former colleagues are friends to this day.  I harbor absolutely no animosity toward BigLaw and work routinely with  them on deals.  And I respect the work they do.  I just no longer wish to bill 2000+ hours a year.)

As Maura points out correctly, BigLaw is slow to change its business model out of institutionalism, profit incentive, hourly billing rate pressure, per partner profits and other factors.  For someone like me, who does not have the pressure of having to ask partners or administrators to modify my billing rates or quote a flat fee deal, it is an entirely different animal.

And as Jay Shepherd rightly points out, you either know how to price a deal or you don't.  I think I do, although in some cases if I say so myself I am a pretty good deal, inasmuch as I see people charging double my billing rate for the same work.

What I find annoying is when that work is done poorly at those rates, regardless of the firm's size.  I have been reviewing documents and other work product the last few weeks that would have gotten me scolded if not fired a few years ago.  In addition to the usual egregious typos (I know, but lawyers are trained to loathe them), there were internal inconsistencies, wrong choices of law, provisions that were not checked against the business deal, terms left in from previous deals that did not belong here (yes, Virginia, we all re-use the same forms over and over again), documents that had to be corrected two or three times -- you name it.

I think part of the problem is that the senior associates and partners do not have the time anymore to mentor and work with the younger folks to improve their drafting and lawyering skills.  It is an art.  I am not perfect by any means at all, but I had some great mentors who took the time -- even non-billable time -- to make me a better attorney, and for that I am grateful.  These days?  There is so much pressure to make hours these days that it is hard to make the time to both mentor the young and have a life.

All the buzz words aside, here is what it really comes down to in my humble opinion, and it isn't rocket science:

1.  Clients want results.  And they will pay for results.

2.  Clients want you there.  So yes, you answer the phone or an email when least expected.

3.  Paying up to $750/hour for routine legal services is, in my opinion, insane. Period. When you are betting the company or doing the deals in the spotlight (been there, done that, by the way), it makes a LOT of sense. But for some items, as Maura correctly points out, there needs to be a different approach.  Maybe getting BigLaw to come down to my pricing level is one way.  Hiring people like me is another, as you do not sacrifice quality, or get my skill for the price of a junior associate.

4.  Know how to price a deal when asked.  A good real estate lawyer can usually give a good and fair number.

5.  Work hard when called for.  Be thorough.  Turn the product around.  Keep the client happy.

So, dear BigLaw -- welcome to our world.  We small firm folks have been "using modern business process driven methods, smart forms, predictable pricing and agile lawyering" for years now.  Nice to see you catching up to us!

Tuesday, May 10, 2011

Four good reasons to have a closing checklist

Lawyers love checklists. They love checking little boxes and ticking off each portion of a deal as it is finished, culminating (hopefully) in the closing of a transaction.

Much as I like to chuckle about this, checklists serve very important purposes.  When I started as a real estate lawyer, I thought that my prodigious memory could handle all the details and that I didn't need to spend the time working on them.  My mentors fortunately convinced me otherwise before I fell into bad habits, and they were right. (See #2 below.) I therefore have a checklist for every commercial real estate purchase or sale or loan in which I am involved, be it one page long or more than a dozen with over 100 items.  Before you ask: yes, I have checklists for other real estate transactions, too.  I use a checklist of different sorts for leases, one that no one else I know uses.  But it works for me and keeps the deal going.  I also have my own little quirks when it comes to how I prepare and edit and work with my checklists.  I will not bore you with those details except to say again: it works for me, and I encourage you do have a system that works for you.

So why should you have a closing checklist?

1.  A good, thorough checklist is the road map of a commercial real estate transaction.  By spending the time up front and at the beginning of the deal you can see what needs to be done and budget your time accordingly. It also helps you make sure the long lead-time items are taken care of first.

2.  Without a checklist, you will inevitably forget something.  I don't care how good you are or how many deals you have done.  It will happen.  Period.  Heck, even with a checklist sometimes something will fall between the cracks because someone forgot, because you didn't know about certain requirements or because someone never told you about something.  That's why you make the big bucks, so deal with it and move on. (I speak from experience here, by the way.)

3.  A good checklist delegates responsibility.  It says what the buyer, the seller, the lender, the brokers (many lawyers often forget about them, and they shouldn't!), the title company, the attorneys and any third parties need to do to get the deal done.  Depending on the circumstances, sometimes I prepare two closing checklists: one for internal use and one to circulate among all the parties.

(Here comes the one you may not have thought about.)

4. A good closing checklist not only adds value to the deal but shows just how you are doing so!  By creating the road map, you are also showing just what you are doing, how the matters assigned to you are progressing and how close (or far) you are from getting the deal done.  A client can see this document and say, "Hey, this all makes sense.  Look at all these things we might have been scrambling for or forgotten about if Dave hadn't provided the checklist! Updating the checklist periodically is also important, in my opinion, as it shows the progress of the deal.  It also serves as a reminder to people to get their parts of the deal done so we can close, and exposes those who are not doing that.

These are by no means the only reasons to have a good closing checklist.  But they are four good ones.  If you have others, speak up.

Monday, May 9, 2011

Five good reasons to call me first

Okay, time to fess up: I am in the business of making money as a real estate attorney.  Gee, imagine that!  But that does not mean I always get the call from a client or a prospective client, or get it in time.  Here are some real life (modified a little to protect confidentiality and all that) examples of clients who should have called me first before doing something:

1.  Oh, it was only a letter of intent.  I figured you could just fix it up in the contract.  Maybe yes, maybe no - and for a variety of reasons.  Does the letter of intent say it is non-binding?  And even if it does, are there provisions a court may find binding anyway, such as the duty to negotiate and work in good faith?  (Yes, it all depends.) And even if you have all of that going for you, there may be provisions in the LOI that, while non-binding, are awfully hard to negotiate against once it is in the "roadmap" of the deal.  There are few positions I like to argue against less than, "Why are you retrading us on Provision X?  It was in the LOI for a reason."  So I end up spending more of your money fighting what could be a losing battle in a negotiation than if I had been involved from the get-go.

2.  They said this document was just a standard form.  And the check's in the mail, this will only hurt a little, and honey, I swear it is only a cold sore.  Uh huh.  So that is why you signed a ten year lease with a full personal guarantee for your business even though your financing is still in the approval state?  You didn't negotiate an out from that? Oh, your lawyer would at least have pointed it out to you so you'd know the risks.  Oh, you are calling me now!  I see...well....

3.  Oh, I don't need title insurance.  The lender has a policy so that will be enough.  Nope.  The lender's title insurance policy only kicks in if your loan is impaired and you blow out on your mortgage.  It insures the lien of the mortgage and gives the owner, in a word, nothing.  The cost of a simultaneous issue title policy in connection with a refinancing is cheap.  I Often advise clients to get one, especially if a property has appreciated in value significantly.  That said, you don't necessarily need a new one if you have a policy in place but the title agency went out of business.  The insurance underwriter that issued the policy is still liable for any claims.  Each case is a little different.

4.  I signed the lease (or the purchase agreement) without calling you because the owner is an old friend.  That's great. But what if you sign a ten year lease and the owner sells the property (or worse yet, is foreclosed) during the term.  You now have a non-friend as your landlord or a lender that could perhaps terminate your lease.  Do you want to be in that position with no bargaining power?

5.  The lease amendment just changed one thing and had a page or two of boilerplate provisions.  Uh huh.  I can think of one instance where "boilerplate" in a lease amendment cost a tenant millions of dollars in extra rent many years later because the tenant's lawyer (who actually drafted the amendment in this case) did not think through an important financial issue or perhaps never read the original lease.  (PS: I was not the tenant's lawyer.)

Hopefully this convinces you to spend a modest amount of money up front for some good professional advice, be it from me or another real estate attorney.  The alternative?  Letting it go, and then risking having your matter falling into one of the above categories or another one.  Trust me, the bill you get for being proactive will be cheaper in the long run than the bill you will get for being reactive.

Wednesday, May 4, 2011

I'm a Deal Killer? Lawyers as Advisors

In the last few weeks I have read several items suggesting that the normal node of real estate lawyers, or transactional lawyers in general, is as a deal killer.  The most recent came today while reading the website of John T. Reed, a real estate writer whom I respect a great deal.  He is truly one of my favorite writers on real estate, current events and the military.  If you haven't been to his website. I encourage you to check it out.

I have never really thought of myself as a deal killer.  I see my job as advising clients on potential risks that might be out there so they can make an informed business decision on whether or not to go forward with a transaction.  Here's an example based in part on real life.  Client X is thinking about buying a property. A portion of the property is encumbered by a covenant with a right of reverter to the city if certain work is not completed and a certificate of completion filed with the city.  The work was done and a there was a certificate in the title company file, but it was never recorded.  My advice to the client in this case?

First, is the title company willing to insure over the right of reverter given that is has an unrecorded certificate of completion?  Yes.  Move to step 2.

Next, is the city, as part of the rezoning process, willing to drop its right of reverter? Client thinks so based on discussions with the city and its attorney.  Move to last step.

In the event the city does exercise its right of reverter (which in the client's analysis was a minimal risk), would the title insurance proceeds (assuming no fight over coverage) be sufficient to make them whole? Yes, the client thought so.

My job wasn't to kill the deal, which in fact closed. It was to give them a road map of possibilities and scenarios to allow the client to make an informed business judgment on whether to proceed. It wasn't an easy call, but it was an informed one.  And sometimes the deal dies.  Heck, I've heard of the murder defense called  "he needed killing," and you can compare that to some deals that have four legs and bark.  So don;t always assume your lawyer -- or the other guy's lawyer -- is someone out there trying to stop you from making money. We are out here to advise you of the risks and rewards of playing in the sandbox.

Tuesday, May 3, 2011

Dave, just what is this SNDA thing again?

One of the documents you will see in commercial real estate loans is a subordination, non-disturbance and attornment agreement, known in the business as an SNDA.  Many clients who do not encounter this particular document on a daily basis will call or email me to ask for a translation.
The SNDA is a document executed by (1) the lender of real property, (2) a tenant at that property and (3) usually – but not always – the owner of the property borrowing money from the lender.  The purpose of the SNDA is threefold:
1.  The SNDA subordinates the rights of the tenant under its lease to the lender’s mortgage or trust deed on real property. This is important to a lender because it wants to make sure its lien and its rights are superior to those of the tenants. Many commercial leases have language automatically subordinating the lease to the loan, but: (a) some do not; (b) some large tenants or tenants will clout will negotiate that provision out of the lease or condition it on an SNDA (more about that in a moment); and (c) despite the self-subordination language in many leases, some lenders ask for the SNDA (i) to add certain additional provisions, (ii) out of an abundance of caution or (iii) because they have to check that box on their loan checklist. (Yes, I have encountered that scenario at least once in my career.) 
2.  The SNDA typically provides that, so long as the tenant pays the rent and complies with the terms of the lease, the lender, if it takes over the property in a foreclosure, deed-in-lieu or otherwise, will not disturb the tenant’s quiet enjoyment and tenancy at the property. This is important for the tenant because a lender otherwise can, in a foreclosure situation, reject a lease and kick out a tenant. Admittedly, I have never had this happen to me (knock on wood), although I know of occasional situations where this occurs. 
3.  Finally, the SNDA provides that the lender and tenant will attorn to one another. Attorn, you may ask? Simply put, all attornment really means is that if the lender forecloses, the lender cum landlord will recognize the tenant as the tenant, and the tenant will recognize the lender (or its designee) as the new landlord.
      What about the landlord/borrower? Usually the landlord’s role is the facilitator or go-between between its two competing parties, the lender and the tenant.  It can be frustrating sometimes to chase down the documents but they are important to both parties and are sometimes heavily negotiated.  Also, while the “guts” of the documents are often similar, note that SNDAs frequently have some different provisions, depending on the lender and the deal and the circumstances.

      Whether you are an owner, a tenant or a lender and have questions or issues regarding SNDAs, please feel free to email me or call me at 312.373.7242 and I will do my best to help.

      Monday, May 2, 2011

      More on Ghost Malls - Co-Tenancy

      If you think residential real estate is all about location, location and location try doing some retail work!  There tenants or buyers don't just want the right neighborhood, the want the right, side of the street, a full mall and the right mix of tenants.  Oh, and tax incentives don't hurt either, especially for the box tenants.

      This story gets into traditional and strip mall vacancy rates (which will vary wildly) and does a good enough job, but I wish it had taken the analysis a step further. So I will.

      National tenants and retail tenants with a lot of negotiating power will often negotiate co-tenancy clauses in their leases, giving them the right to reduce rent or even terminate the lease if certain events occur.  Usually they involve one of two events, and sometimes both.  The first is if the leased area of a center goes below a certain threshold, then the tenant has the right to walk.  The other typical co-tenancy clause involves a major store; e.g., if two of the four anchors close the smaller (also known often as "in line") national tenant also has the right to shut down.

      If you are not a CRE pro and ever wondered why your local mall, within a short period of time, went from being full to half vacant or even dead, this is sometimes the answer.  Certain leasing events with other tenants occurred that triggered the co-tenancy clause in many leases and folks starting blowing out.  This is by no means the only reason. Sometimes a new, better center opens.  Other times, leases just expire (for instance, I have seen malls go half empty around the 10th anniversary of an opening).  But add another possible answer for the reason to your arsenal, one that the average guy will not think of or know about. (But then the average reader of this blog probably knows that, right?) And  landlords will often, when they can, negotiate incentives to get tenants to stay, especially if they know a co-tenancy may be at risk.  (If you don't think that happened with Border's, guess again.)

      All that said, remember the magic word of location. If your building is where the shopper are or want to be, you are in way better shape than...well, the others.