| I read once that if you took all the real estate | | | | Valentine's Day was that her lover would show up at |
| lawyers in Illinois and laid them end to end along the | | | | her door, dressed in a white tuxedo with tails and a |
| equator - it would be a good idea to leave them | | | | top hat, and present her with a beautiful bouquet of |
| there. That's what I read. What do you suppose that | | | | flowers. You've rented the tuxedo, but now you are |
| means? | | | | concerned about how much money you are spending. |
| I have written before about the need to exercise | | | | TRUE OR FALSE: Since flowers are pretty much all |
| due diligence when purchasing commercial real estate. | | | | the same, it is OK for you to skip the roses and |
| The need to investigate, before Closing, every | | | | show up with a bouquet of fresh yellow dandelions. |
| significant aspect of the property you are acquiring. | | | | Scenario No. 2: For several years you eyesight |
| The importance of evaluating each commercial real | | | | deteriorated to the point where you can barely see |
| estate transaction with a mindset that once the | | | | your alarm clock. You are now considering corrective |
| Closing occurs, there is no going back. The Seller has | | | | eye surgery so you won't need glasses. Your |
| your money and is gone. If post-Closing problems | | | | sister-in-law had corrective eye surgery and has had |
| arise, Seller's contract representations and warranties | | | | spectacular results. She recommends her eye |
| will, at best, mean expensive litigation. CAVEAT | | | | surgeon, but mentions the cost is about $5,700 for |
| EMPTOR! "Let the buyer beware!" | | | | both eyes and that the surgery is not covered by |
| Paying extra attention at the beginning of a | | | | insurance. A few years ago, you had surgery to |
| commercial real estate transaction to "get it right" | | | | correct your hemorrhoids and it cost you only eight |
| can save tens of thousands of dollars when the deal | | | | hundred bucks. |
| goes bad. It's like the old Fram® oil filter slogan | | | | TRUE OR FALSE: Since surgeons all went to medical |
| during the 1970's: "You can pay me now - or pay me | | | | school and are all medical doctors, you are being |
| later". In commercial real estate, however, "later" | | | | frugal and wise by asking the surgeon who |
| may be too late. | | | | performed your hemorrhoid surgery to perform your |
| Buying commercial real estate is NOT like buying a | | | | corrective eye surgery. |
| home. It is not. It is not. It is NOT. | | | | Scenario No. 3: Several years ago, when you first got |
| In Illinois, and many other states, virtually every | | | | married, you asked a former classmate who is a |
| residential real estate closing requires a lawyer for | | | | lawyer to represent you in the purchase of your |
| the buyer and a lawyer for the seller. This is probably | | | | townhome. The cost was only $375. A year later, |
| smart. It is good consumer protection. | | | | you started a family and decided you needed a Will. |
| The "problem" this causes, however, is that every | | | | The same attorney prepared Wills for you and your |
| lawyer handling residential real estate transactions | | | | wife for a total cost of $700. You started your own |
| considers himself or herself a "real estate lawyer", | | | | business and your attorney friend formed a |
| capable of handling any real estate transaction that | | | | corporation for you and charged you only $600 plus |
| may arise. | | | | the cost of the corporate minute book. Years later, |
| We learned in law school that there are only two | | | | when your son was arrested for misdemeanor |
| kinds of property: real estate and personal property. | | | | reckless driving, your attorney friend handled the |
| Therefore - we intuit - if we are competent to | | | | criminal case and got your son off with supervision |
| handle a residential real estate closing, we must be | | | | for only $1,500. |
| competent to handle a commercial real estate closing. | | | | Your business has been successful and you have built |
| They are each "real estate", right? | | | | a pretty sizable nest egg, but you are tired of |
| ANSWER: Yes, they are each real estate. No, they | | | | working for every dime and want to try investing in |
| are not the same. | | | | real estate. You have your eye on a strip shopping |
| The legal issues and risks in a commercial real estate | | | | center. It includes a grocery store, bank, hardware |
| transaction are remarkably different from the legal | | | | store, dry cleaners (on a month to month tenancy), |
| issues and risks in a residential real estate transaction. | | | | a couple of fast food restaurants, a gift shop, dental |
| Most are not even remotely similar. Attorneys | | | | office, bowling alley (with a lease about to expire), |
| concentrating their practice handling residential real | | | | and wraps behind a gas station/mini-mart on the |
| estate closings do not face the same issues as | | | | corner. The purchase price is $8,000,000, but the net |
| attorneys concentrating their practice in commercial | | | | operating income looks pretty good. You figure if you |
| real estate. | | | | turn the bowling alley into a full service restaurant |
| It is a matter of experience. You either know the | | | | banquet facility, and convert the dry cleaners into a |
| issues and risks inherent in commercial real estate | | | | 24-hour coin laundry, the net operating income will |
| transactions - and know how to deal with them - or | | | | increase and the shopping center will turn into a |
| you don't. | | | | spectacular investment. You plan to pull together |
| A key point to remember is that the myriad | | | | much of your life savings and put down $2,000,000 |
| consumer protection laws that protect residential | | | | to buy this strip shopping center, borrowing the |
| home buyers have no application to - and provide no | | | | balance of $6,000,000. You remember that your |
| protection for - buyers of commercial real estate. | | | | lawyer friend handled the purchase of your home |
| Competent commercial real estate practice requires | | | | several years ago, so you know he handles real |
| focused and concentrated investigation of all issues | | | | estate. |
| material to the transaction by someone who knows | | | | TRUE OR FALSE: Commercial real estate is the same |
| what they are looking for. In short, it requires the | | | | as residential real estate [Hey, its all dirt, isn't it (?)], |
| exercise of "due diligence". | | | | so you are being a shrewd businessman by hiring |
| I admit - the exercise of due diligence is not cheap, | | | | your lawyer friend who will charge much less than a |
| but the failure to exercise due diligence can create a | | | | lawyer who handles shopping center purchases |
| financial disaster for the commercial real estate | | | | several time a year. [What is this "due diligence" stuff |
| investor. Don't be "penny wise and pound foolish". | | | | anyway?] |
| If you are buying a home, hire an attorney who | | | | ANSWERS: |
| regularly represents home buyers. If you are buying | | | | If you answered "TRUE" for any of the foregoing |
| commercial real estate, hire an attorney who regularly | | | | Scenarios |
| represents commercial real estate buyers. | | | | STOP! |
| Years ago I stopped handling residential real estate | | | | The Quiz is over. |
| transactions. As an active commercial real estate | | | | Please find a quite place to reflect upon your life and |
| attorney, even I hire residential real estate counsel | | | | consider whether the decisions you make |
| for my own home purchases. I do that because | | | | consistently give you the results you desire. |
| residential real estate practice is fundamentally | | | | If, on the other hand, you understand that the |
| different from commercial real estate. | | | | answer to each of the foregoing questions is FALSE, |
| Maybe I do "harp" on the need for competent | | | | I am available to help you in Scenario No. 3. |
| counsel experienced in commercial real estate | | | | For Scenario No. 2, you should follow your |
| transactions. I genuinely believe it. I believe it is | | | | sister-in-law's suggestion and contact her eye |
| essential. I believe if you are going to invest in | | | | surgeon, or some other eye surgeon with equal skill. |
| commercial real estate, you must apply your critical | | | | For Scenario No. 1, you are on your own. [But, if you |
| thinking skills and be smart. | | | | answered TRUE for Scenario No. 1, you may be |
| POP QUIZ: Here's is a simple test of YOUR critical | | | | FOREVER on you own.] |
| thinking skills: | | | | Investing in commercial real estate can be profitable |
| Please read the following Scenarios and answer the | | | | and rewarding - but it requires good critical thinking |
| questions TRUE or FALSE: | | | | skills and competent counsel. |
| Scenario No. 1: It's Valentine's Day. You are in hot | | | | You have a have a brain. It is strongly recommended |
| pursuit of the love of your life. A few weeks ago, | | | | that you use it. |
| she confided in you that all she ever dreamed of for | | | | |