Closing the big real estate transaction is exciting for the buyer and the seller. Seller’s and buyer’s counsel also experience a certain level of heightened awareness. Not that we would let it show, of course. As the saying goes, “never let them see you sweat.” But if the truth be known, deals with eight or more zeroes in them tend to get everyone’s attention. Even a mere six or seven zeroes can raise the pulse as well as the gray hair on your head.
Combine the real estate transaction with the sale or financing of an existing business and you have your basic hotel deal: a complicated hybrid of land, buildings, fixtures, tangible personal property, and intangible personal property.
Just sorting out the parties can be a major accomplishment. I was counsel to the borrowers in a transaction where two companies owned the land, and three other entities owned the buildings. Another company owned some, but not all, of the furnishings. The management company leased the land, buildings, and furnishings, and employed most, but not all, of the employees. Try explaining all that to your friendly neighborhood banker.
Regardless of the size and complexity of the deal, certain issues are common to every transaction. Sellers and buyers and their counsel often refer to these issues as “due diligence.”
For a seller, the due diligence begins before offering the property for sale, or seeking financing. The seller will want to consider whether or not to use a broker. Seller should also determine what level of confidentiality the deal requires, and whether to have a prospective buyer sign a confidentiality and non disclosure agreement. Most importantly, the seller will want to pre-qualify the potential buyer so as not to waste time and money on a transaction that has little chance of closing or, worse yet, could end up in litigation
Typically, the seller (or borrower) will compile an offering package that describes the property, the current ownership, and includes recent profit and loss statements. The offering package should anticipate the most common questions that the buyer or lender will ask. The seller will need to provide all legally required disclosures, and consider what other voluntary disclosures, if any, to make.
Seller’s counsel will generally preview the offering package and the legal documents, anticipating the legal and other issues that are likely to arise. He will look at the seller’s organizational documents, a current title report, contracts, claims, litigation, labor, and other issues to identify potential problem areas.
Preparation is the key to success. A well prepared seller or borrower will maximize the likelihood of a favorable transaction that closes on time.