The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
All too often investors have laser focus on the economic side of the deal, ignoring the importance of the legal side. Having an experienced real estate attorney look over contracts and negotiations can ensure that investors aren’t trapped in deals with hidden terms they may have missed initially. A fair deal is the best deal an investor can get.
What do most investors overlook when evaluating real estate development projects? You know, I think investors spend too much time poring over the financials of the deal, and questioning the little assumptions here and there, and not enough time spent reading the legal contract and negotiating maybe the legal contract. That comes from a lack of sophistication on the legal side, and I think that can be more important than the economics of the deal. Are you getting a good deal, are you getting a fair deal, when it comes to the actual legal agreement? What are your rights as an investor? Are there any “gotchas” in there? We draft our contracts, you know, the way that we would want to invest our money. So, we don’t want any surprises, we don’t want our investors to be upset because “Oh, you didn’t tell me about this fee. You didn’t disclose that you were going to this. Or you didn’t tell us you were going to do that.” So often that happens and that’s the case, or “We wanted to get out in 3 years, and now it’s been 6 years and you won’t sell the property and we have no rights.” So, really, it’s very very important that you get a very competent lawyer, a real estate lawyer, a specialist, to negotiate these types of contracts for you. Do not give it to a generalist attorney, you want an expert. That is probably the most overlooked thing.