To Buy or not to Buy: Falling Deals in Real Estate
Real estate acquisitions and dispositions has changed dramatically over the past several years, posing new challenges. We hear from Michaela Grambling, who reveals what could be done to increase commercial growth in real estate and reasons to why deals often fall through.
With Texas being the top state in the US for contributions to state gross domestic product and jobs created/supported by commercial real estate development, how do you recommend the legal sector should change in order to support this growth?
I graduated from law school in May 2008, and began my career just as the financial crisis hit our country and affected many clients. As the country progressed into the recession, I noticed that the need for legal services remained strong, but many companies struggled to pay their legal bills. Legal professionals need to be able to adapt and put themselves in the best position to survive the cyclical nature of the real estate business. This means being open to alternative billing models such as fixed, flat, capped or blended fees for services, in order to ease potential cash constrains that you’re your client may be temporarily experiencing. This not only helps your clients find a payment structure that works for them, but also ensures that you are able to collect on your billable time.
Moreover, what do you think could be done to increase commercial real estate growth within your state?
I think a good start is encouraging investment in sectors that have the most potential to drive innovation, such as the technology and health care sectors. These sectors not only create more jobs within their fields, but also drive job growth in industries that play support roles. This includes jobs in legal, construction, retail, and related fields. As demand for space increases, rents go up, and this tends to draw new investment and competition into the market.
When undergoing due diligence reviews, what are important things for you to ‘check off’ for your clients?
When representing a purchaser, it is not only important for contractual documents to specify what documents are needed during due diligence, but it’s also important that they contain a reasonable, yet firm, deadline for the receipt of those documents. These are commonly the preliminary documents I ask to check off, reserving the right to seek additional information:
- The most recent title commitment or policy and all related documents
- The most recent ALTA survey and topographic study for the property
- Copies of all blueprints and as-built drawings
- The Zoning Compliance Certificate and all zoning approvals, variances and pending applications
- Declaration of covenants, conditions, restrictions, reservations and easements
- Any third-party engineering and environmental reports, including, but not limited to Phase I and Phase II reports, mold abatement reports and underground storage tank testing and closure reports, NFR letters, appraisals, soil tests, boring reports, foundation reports, termite and/or radon studies.
- A complete copy of all written leases and each guaranty, together with any amendments
- A certification that there are no oral leases or oral understandings
- An accounting of all rent and other income, common area maintenance, security deposits and real estate tax contributions paid by any tenant at the property
- A certified rent roll showing current rent, previous rent if applicable, delinquencies, security deposits, years of occupancy, lease commencement date and lease termination date.
- An accounting of all security deposits and any other amounts to which any tenant, vendor, or any other party may be entitled.
- Copies of the real estate tax bills, including special assessments or incentives, copies of all tax protests, related correspondence and protest results for the property for the previous 3 years.
- Copies of the prior 2 years’ utility bills for the property
- A complete copy of each written service contract, together with amendments thereto, and a written summary of each oral service contract, together with copies of any and all other contracts and agreements relating to the operation, maintenance and repair of the property
- An accounting of all income and expenses related to the property, including collection reports and tax statements for the previous 3 years
- Complete copies of all permits, certificates of occupancy, warranties, government notices, special assessments, code violations and unexpired guaranties applicable to the property
- A copy of existing insurance policies and certificates and a list of any pending insurance claims against or involving the property.
- A schedule of any and all pending litigation affecting the property or the seller’s ability to convey the property
- Any and all other matters as the purchaser may deem reasonably necessary to satisfy itself, in its sole discretion, concerning the property and the status of the property’s title
What are common reasons to why real estate deals fall through? What could be done to prevent this?
Financing obviously plays a major role in determining whether a real estate transaction is going to close. The best way to deal with this issue to try to make sure your client secures proof of funds and earnest money as early as possible. I also see deals die due to a lack of firm deadlines for due diligence and a failure to communicate between the parties. I have found success in outlining a standard schedule for communication from the outset of a transaction. This usually means weekly conference calls in which all interested parties must participate.
What is a characteristic you think lawyers in property and real estate should maintain?
I am a third-generation attorney. This advice is among the first that I was ever given by my father, who is also a real estate attorney, upon graduation from law school. A good lawyer will always follow the rule of the “3 As”: Affability, Availability and Ability. Affability: it’s important to be likeable. If a client doesn’t like you as a person, he or she isn’t going to come back to you. It’s important to get to know your clients on a personal level and be able to have a regular conversation that doesn’t involve business. Availability: One of the biggest client complaints involves the unavailability of some lawyers. If you don’t return phone calls or emails promptly and aren’t available for meetings with little notice, a client isn’t going to want to use you again. Ability: It goes without saying that a good real estate lawyer must have the ability to get a transaction done with a minimal amount of hiccups. Often, this means taking time to draft and review documents slowly. Tying this back into the evolving billing model that is emerging in the legal sector, this may mean sacrificing a bit on the traditional billable hour model in order to make sure the client is happy with the cost of your services, as well as the quality.
My name is Michaela Ainsa Grambling. I am currently of Counsel at Ainsa Hutson Hester & Crews, LLP in El Paso, Texas and serve as General Counsel for HCG Asset and Property Management, LLC. I handle a wide variety of real estate transactional issues for clients of Ainsa Hutson Hester & Crews, and advise on human resources issues, lease negotiation, transactional issues, and provide direction on regulatory matters for HCG Asset and Property Management, LLC. Being able to serve as General Counsel for HCG Asset and Property Management, LLC has afforded me the opportunity to continue practicing law while participating in the operational side of the real estate business.
Michaela Grambling
General Counsel
HCG Asset and Property Management
5809 Acacia Circle
El Paso, TX 79912
(915)227-5322
