7 Ways a Commercial Real Estate Attorney Can Help Syndicators Do Better Deals With Bishoy Habib

Hey, welcome everybody to Syndication Attorneys' free monthly podcast. We talk at this, this podcast about topics of interest to real estate syndicators and fund managers with the opportunity for live questions and answers at the I am attorney Kim Lisa Taylor. I would also like to introduce Bashoy Habib, who's a new team member for Syndication Attorneys, and we're going to be quizzing him today about everything related to commercial real estate transactions and kind of what's the difference between real estate transactions attorney. You know, what does he do versus what you're used to hiring us to do? But just before we get started, please note that this event is both recorded and livestreamed and will be used for future promotion, posted, posted on our website or in a broadcast available to the public. You can ask questions at the end of the broadcast by raising your hand or typing it in the Q&A. If you don't want your voice recorded, then just type it in the Q&A. If you raise your hand, then we may call on you, and then you can ask your question live. Information discussed during this free broadcast is of a general educational nature and should not be construed as legal advice. And today our topic is 7 Ways a Commercial Real Estate Attorney Can Help Syndicators Do Better Deals. So I love that. In fact, we tried a whole bunch of different titles for this just to try to find the one that would resonate. And there's actually these just kind of general information for the audience here. There's, we like Monster Insights, which is a free, you can Google search Monster Insights and you can run headlines. It's a headline analyzer for any articles and for podcasts. And we've gotten a lot better about naming stuff that I think has a better, resonates better with our audience just by using that. And it's really cool because they'll give you a score and tell you whether you've got the right keywords in it or you've got too many words or are you using emotional words or things that will get people excited. So if you want your stuff to go viral, you gotta use AI, I guess. We're coming to that. But you also have to be careful about AI because it bit me yesterday. Actually had a call with a potential client who took an AI transcript, took it out of context, spit it back to me and said, great, you're gonna do all this stuff for me for $1,000, right? That's what you said. And it's like, you know, cutting and pasting. And it's like, yeah, no, that's not what I said. We're not doing that. So, you know, be careful because people can use it to come back on you. So we've just actually created a policy that no AI is admitted to any attorney-client privilege conversations anymore.

Yeah.

You know, we're admitting a third party, right, that is now taking, potentially taking away the attorney-client privilege of that call.

Right, right. Yeah, that's a different angle. I saw the neatest thing I saw with the AI and the law was this group that was trying to pitch, you know, leases. And basically they claim to have this database of, I don't know, thousands of leases. And basically instead of, you know, me reviewing it as a real estate attorney, I would, I would input the lease into the database and it would tell me It's missing these key provisions. It's about, you know, 86% consistent with a similar lease for a similar size property. And it was kind of crazy how, you know, I mean, when you think about it, that could make sense. But I mean, I, you know, I mean, you still—

But guess what they're doing? Guess what they're doing every time you input that data? They're harvesting your lease to now become a template for somebody else.

Oh, 100%. Yeah, 100%. And that's the way it goes.

Yeah.

And they're charging you to do it.

Yeah, I think AI is a double-edged sword. If you've never— and maybe I've talked about this on a previous podcast, but it's a little bit of a pet peeve of mine about AI. And I want to use it to illustrate to people why you shouldn't use AI to draft legal docs. Because if you ever look at any image of a person that is generated with AI, look and see if they have hands. And if they do have hands, look at their fingers. They're wrong. They're just wrong. They'll have a finger going off in the wrong direction. They'll be cut off at the knuckles. They'll have 6 fingers, 4 fingers on one hand. AI does not get fingers. So anyway, just—

Is that a thing?

That's a thing. I've seen it. Yeah. Our marketing director pointed it out to me and she's like, yeah, look at their hands. You can tell that's AI generated.

Wow.

If that's how badly they can't get a human hand, that doesn't seem like it should be that hard of a thing. How badly are they going to mangle your legal documents? And how confident are you going to be in those when you're trying to defend them in court in a $200,000 or $300,000 lawsuit down the road?

Yeah. And I know you and I know this, but for the listener who doesn't know, the law and AI came under big scrutiny earlier this year because some attorney, I think it was in New York, basically, uh, during a trial, um, you know, just, uh, typed in whatever he was trying to— some brief or memorandum he was trying to draft. He just typed it in ChatGPT. It came back with a whole memorandum. It drafted. He submitted it to the court. Turns out it was completely inaccurate. It cited cases that didn't exist, and it made him look like a clown. The court came down on him, reprimanded him, and it became this national spotlight, uh, You know, unfortunately on the law and ChatGPT. And, you know, ever since then, there's been all kinds of rules implemented that, you know, you have to disclose if you're using artificial intelligence with your legal briefs and memorandums. And so kind of a sensitive subject in the law.

Wow. Wow. That's, that's interesting. Yeah. So, you know, I mean, I use it sometimes for ideas and like really simple stuff, like, you know, if I want to write an article, but then I don't use what they wrote. I just use it to kind of prompt my writing in my own ideas. And, you know, if I do use anything they wrote, it's heavily, heavily edited. So just be aware, you know, you're not going to get an AI attorney. And if you do, you're going to get what you paid for, and you're probably going to end up paying for it multiple times over and over when you're going to try to get a real attorney to help fix— help you fix it.

Yeah.

Anyway, that's a little soapbox about AI for the day. That's a little bit of our topic. But I think it's important. It's an important topic. And, you know, we don't often get other attorneys on our podcast that we can talk to about stuff that's facing the legal profession. So I'm sure your guests are interested. So, all right, well, tell us about your experience, what you do, and how you got here. Yeah.

So again, my name is Bashoy Habib. I'm a real estate attorney, so I'm licensed both in New York and Florida. My story begins a little while back, my law story anyways. I kind of grew up in real estate. My dad, the immigrant story, came here. Learned that real estate was the path to success and freedom and started doing it back in the '80s. Um, so I grew up in it. Um, I like to tell people I negotiated my first lease when I was 15 years old on a commercial property. Uh, my dad, you know, owned a building and we worked on it together, and I thought that was kind of cool. Um, and so ever since that moment, I, I always knew I wanted to do real estate, and I was like, well, maybe, you know, I could go the legal route. And so I went to law school Um, with the full intention of, of kind of doing real estate. Um, so that's really where I focused my practice on. Um, when I graduated, my first job out of school was in New York, um, and it was 2012 when I graduated. So all that was available down here in Florida, um, and I'm from Tampa Bay, um, all that was available down here was foreclosure mills, and I just didn't want to do that kind of work. So I moved up to New York City, um, worked on, uh, We had a client who was a large developer in Manhattan of hotels, the largest in history, in fact. And so I ended up doing his work for 2 years along with a bunch of other commercial and residential real estate up in New York, New Jersey area, and Pennsylvania. So cut my teeth up there, learned what a work ethic was up there. We just really didn't have that in Florida. Nobody's that fast-paced down here. So, um, you know, working 80 hours a week was, was just to stay, you know, stay, uh, you know, just on par. It wasn't getting you ahead in, in the concrete jungle up there. And so cut my teeth doing that, moved back down here, um, took a job as a finance attorney where I was working on, you know, 7, 8, 9-figure deals down here, um, for local governments, um, city, county, state, uh, things of that nature, which really helped give me an insight into the finance side of the law. And, uh, and the financial side of the transaction. And then from that point on, I focused strictly on, you know, uh, real estate law again. And so what I specialize in is, is transactional law, right? So real estate and business transactions. So, um, high level, that's buying real estate, selling real estate, um, uh, you know, partnership agreements, joint ventures, things of that nature, leases. Um, anything you would want to do with a transaction in real estate, um, I've been involved in, in some capacity— structuring, financing, things like that, negotiating— just something I love doing and I'm pretty good at. Um, so, you know, any, any of those things, those are really what I specialize in. You know, I love, uh, being known as a deal maker, um, just trying to find a way to make the deal happen. I love getting to the closing table. And I love making my clients money, right? So those are the things that kind of drive me, and that's kind of my skill set.

Excellent. Excellent. So let's kind of talk about the distinction between what you do and what we do. So when someone hires us, they are hiring us specifically to be corporate securities counsel, which means that we're involved in the real estate transaction, but we're not drafting the purchase agreement. We're not working with you and your lender on your loan docs. We're not negotiating terms with the seller. We're not reviewing your agreements with your real estate broker, your laundry, your property manager, that kind of stuff. That's what Bashoy does. Okay, so you need someone like that on your team in a commercial real estate transaction. You absolutely have to have that. We've had clients that have tried to do commercial real estate transactions without that. And it doubles the amount of work that they have to do. And they end up getting very frustrated with the process because they're getting bombarded by title and the lender's counsel and the lender and the seller. And everybody's asking them for all this stuff. And they're like throwing up their hands, like trying to resurrect old documents from another deal that may or may not be right. Or maybe at worst, trying to use AI to generate stuff they shouldn't be doing. So that's what Bashoy does. So this is why you need him, right? Because what he does is goes hand in hand with what we do. When you come to us, then we're going to do everything you need to structure your deal with investors. So we're going to make sure that you are complying with securities laws, that you selected an appropriate exemption, you understand the rules of the exemption for, you know, from so that you can legally even ask people to participate with you passively in this deal. We're going to help you structure the companies. So usually you're going to have 2 or 3 companies that we're going to create for you. We're going to draft all the operating agreements for those. Each one is highly specialized. Definitely don't want to use AI for any of those. And then we're going to also make sure that you have the right securities compliance documents. So private placement memorandum, subscription agreement, and filings with the SEC and with the state securities agency. So that's not what Bashoy does. So now you kind of see what happens is that when you get a deal under contract, the lender's going to give you a checklist of all the different stuff they want. And there's going to be a section called organizational documents. And then there's going to be 3 or 4 other sections. So Bashoy is going to help you with all the other stuff. We're going to help you with the organizational docs. So that's really how you need to look at it. If you've done a commercial real estate transaction before, you know what I'm talking about. If you haven't, You're gonna, you know, first one you do, you're gonna see that checklist and you're looking for it. You know, usually you're gonna have some kind of a kickoff call with your real estate counsel, the title escrow lender, right? Is that how you typically do it? Yeah. And then during that time, you're gonna identify who's doing what, and then they're gonna— lender is gonna produce their checklist of all the things they want, and then your real estate counsel is gonna help you determine who does what and help oversee that, making sure it all gets done. And then they're gonna— they're gonna be in court, or you're gonna be corresponding with us. We're gonna be feeding you the corporate docs that you can then pass on to your lender. A lot of times people will try to— well, sometimes people will try, or clients will try to, you know, rope us in on the real estate transaction so that we're starting to get all those emails that go on between real estate counsel. And honestly, It's a lot and we don't want that or need it because we're just one small slice of the pie. But I can see the kind of work and the kind of email chains that go on between real estate counsel and the clients and the lender and everybody else. And it's a lot. So he does a lot for me.

Yeah, sometimes those— yeah, sometimes those email threads go on for 6, 7 months at a time and they're over 100 emails. You know, you could get pretty in the weeds if you haven't done a commercial deal before. You're in for a lot of fun dealing with the lenders. But, but I mean, it's, it's everything you said obviously is accurate. And, you know, from my perspective, I think it's important to note that, you know, the earlier you get us involved, the better. Now, that doesn't mean we, we, we can help you so much before, but we can offer you guidance. So in terms of how you want to structure the deal or your situation when you talk to Kim. I mean, it's important to know that before you start taking actual steps or spending money to make sure that it makes sense. It's the same thing with me, which we may touch on a little bit later here today. But ultimately, the earlier you get us involved in the process, or me, the better. Sometimes clients come to me after they've already negotiated an LOI, which is a letter of intent, or even once they've already entered a contract, and they Come talk to me. And at that point, it may be too late for me to offer value on that end of things, which is the negotiation. And so the earlier that you get us involved, even just a preliminary conversation to guide you in the right direction, I think that's a big benefit. Unfortunately, I always joke my clients don't call me unless there's an issue, right? Nobody calls me when they're having a great day. They call me when there's an issue, like in a pinch. Um, but you know, the earlier on you, you engage us or call us or just have a conversation, I think that's gonna help benefit you. And then as far as distinguishing between my role and Kim's role, I mean, my role is more specific to the real estate you're buying, right? Every piece of real estate you're looking at is probably going to have different due diligence that we're going to need to do, different, you know, maybe, maybe it's the same property type, maybe it's 2 different multi-families, right? But each transaction is going to be completely different based on the parties, the timeline, the actual property. So I'm more— think about me as more specific to the property, right? And, and then Kim is more high level in terms of how you structure it, which may vary from deal to deal, but it also could remain the same from deal to deal. If deal one doesn't work, we're just going to do the same structure on this property instead, whereas my role would be different with this property because it's specific to the property. So that's maybe one way to look at it.

Well, I'm talking in terms of when do you bring you on versus us. Actually, you should have engaged Shoi before you engage us.

Correct.

Because we tell people, you know, don't hire us until you have a signed purchase agreement, someone from your team has physically been to the site, and you've reviewed the financials. So ideally, you want to review the financials before you spend any money, even on the purchase agreement or even the LOI. But sometimes you can't get them. They won't release them until you either have an an accepted LOI, or you've got even a purchase agreement. So get the financials as quickly as possible, because once you start adding back all the things that are missing, that's when you find out if it's an actual deal. And then you want to go visit the site because you could drive through the neighborhood and go, oh my gosh, you know, property looks good, but this is a war zone and I don't want to have a property here. It's going to be hard to get good tenants.

Yeah.

Or there's just some inherent problems that you can see when you got to the property that wasn't visible in a photograph. And so I say, you know, and our statistics, we've actually done statistics that if the clients who wait until those 3 things are done to hire us are 85% likely to close their deals.

Wow.

And, you know, so, but you can't wait too long in the process because if you wait until you're completely done with your due diligence to hire us, we don't have time to draft the docs and you don't have time to raise the money. So it's kind of a race. you know, you've got like 90 days to close on a property once you get it under contract and you need to, you know, get the PS— well, you've got the PSA that's already been done, but now you need to start doing due diligence. At the same time, you've got to decide when to engage us. So that should be within the first 2 weeks of that so that our documents can be complete about the same time as your due diligence period. That gives you the maximum amount of time to go out and raise the money. So if you can get your due diligence and our docs done, the corporate docs done before your whole, you know, get your securities offering done before your due diligence period ends or at the same time, then you've got a good 45, 30 to 45 days still to raise the money on a 90-day contract.

Yeah.

And then with Bashoy, you need to get him involved. Like he said, if he can help you even with the LOI, if he can give you some advice on that, then you might not get stuck with some terms you don't like.

Correct.

And then certainly with the purchase agreement, you know, I had an experience where we chose on a deal not to use a real estate attorney. So my husband and I, when we syndicated our property in Ohio, I thought, oh, I'm an attorney, we don't need that. So we just ended up using broker's contract or something. And later on, the seller enticed 16 of our tenants out of our 27-unit apartment complex to go somewhere else by giving them a reward for leaving. And we, we had, we had good, you know, somebody, I asked our real estate counsel because we later had litigation on property for something else, but I asked them how could we have avoided that? And they said, well, you should have had a real estate attorney draft your purchase agreement, and they could have had a clause in there that said that if the seller entices your The client, your tenants to leave, they're responsible for rent for 6 months.

Right. Yeah.

That was a big blow for us to have 16 tenants vacate on a 27-unit apartment complex and then do all the returns and then get them retenanted. And, uh, you know, it became, it took months to get that turned around. So, uh, so don't, you know, I'm an attorney. I shouldn't have done it. I was stupid to do it. You, you know, you shouldn't do it. You really need to have somebody like Bashoy who knows what to look for and what kind of clauses you got to have in these agreements to protect you. Super important.

Yep. Yep. Agreed.

Okay, good. So, all right. So you would have already engaged Bashoy to do the purchase agreement by the time you'd come talk to us. The other reason we might have a signed purchase agreement is because you don't have a deal. I mean, I don't care if you have an LOI that says there's binding arbitration if somebody breaches it. It doesn't matter if somebody comes in and You know, offers more money for that property and the seller decides to take it. What are you going to do? Spend $150,000 to sue him to force him to perform on a contract that's never going to happen? What do you think about that, Pashoy?

Yeah, I mean, I'm a very practical attorney. I, uh, I tell people like, maybe this is your rights or maybe this is their rights. The reality is this is how much money's at stake and this is how much money it would cost you to pursue it. Also factor in it might be a 2 or 3 year process. Also factor in, you know, what, what are you, your opportunity costs in that time? I mean, let's just be realistic. And I think that's what makes me a good transactional attorney is like, I'm always thinking practically what's in the best interest of my client, not what legal rights do they have to a T. And, and what I mean by that is, you know, I may have the right to sue a lot of people, but is that really in my best interest at the end of the day? And it may be. It may be. I mean, there's obviously certain situations where you should most certainly pursue legal action, but the reality is, you know, there's a lot of times where it just makes the most sense as business people and as business decisions to walk away from a situation. You know, where I think I come in handy with situations like that is you can still leverage it and negotiate and say, look, we could come after you, but why don't you just make us whole? You know, give us XYZ and we'll walk away. And I found a lot of times that We could find a reasonable compromise. Not everybody's reasonable, you know, you can't account for people being unreasonable and you can't do anything about that. But the reality is I just like to be practical. I do. I mean, let's just, let's all move on and make more money somewhere else. Again, in the certain circumstance, and some I would say you definitely need to sue them, but generally speaking, you know, I mean, I like to be practical.

Yeah. So for LOIs, I think that's a lost cause.

Uh, you know, LOIs are non-binding generally.

Even if they say they are, they're not. I mean, yeah, they can get tossed out. So when you have a binding contract is when you have that signed purchase agreement, and you really shouldn't be talking to any investors or anybody about that deal or partnering with you on that deal until you have that signed purchase agreement, because until then, someone else can take that deal from you.

And I see that a lot. I see that way too much.

Yeah. So, you know, all of a sudden you're like, you go out to your network, hey, we just got this deal, signed LOI. You know, you're telling everybody where it is and somebody else is like, hey, I put in an LOI on that. And it's like, oh, well, I'm going to pursue that and see if I can get it instead of them, you know?

And I've been, yeah. And I've been involved in those situations where, you know, my client had an offer and then, sorry, had a contract and then the seller You know, took a basically stop started ghosting them, right? Just stopped answering, and then we kind of find out it's we you know my guy does some research and it's on you know whatever, and so we I you know I lien the property. I protect my guy. I put a lien on the property, and that's worked every time. I mean it you can't sell it anymore, right? So we we put something basically telling the world, hey, we're already under contract. You can't buy it. No buyer in the right mind is going to close over that. Right? Because then they don't get clean title, and then we have a right to sue. So, you know, there's ways to protect against that. But then it just goes back to what we were just saying. I mean, at some point, you know, what if they still continue to pursue it? And those are the conversations we have to have. But yeah, that's that's exactly right. Then you can only do so much is probably the point. But we'll make sure that you do as much as you possibly can, right? And then there's inherent risk in any business endeavor, especially real estate.

Well, we had a client a few years ago that was buying a property and the seller figured out that they sold it for less than market and it was millions of dollars that was at stake. And the day of closing, they just refused to sign. And so, no. And they came up with something like, oh, well, you know, there I have to be fully liable if I failed to disclose something and I'm not willing to do that. I mean, it was a completely nonsensical legal argument.

Yeah.

But they just said no. And what I ended up doing is they paid our client $1 million not to buy the property, and then they put it back on the— but then they put it back on the market for like, you know, tens of millions of dollars more.

Wow.

So to them it was like, hey, I'm better off to pay them $1 million and get them to walk away than I am to lose these tens of millions of dollars I could get if I sold it for a higher price to a different buyer.

I mean, and I like that story because everybody, you make a deal, you make it work. It made sense for everybody. Everybody was happier, you know, and we walk away and everyone finds another opportunity. You know, that's the kind of transaction that I like, you know?

Yeah. I think it barely made our client whole. It was a big deal in it. And, you know, there was a lot of moving parts to that deal. So it was, you know, it was a lot of grief and aggravation, but, you know, like you said, at the end of the day, They could have kept pursuing it. It would have cost them hundreds of thousands of dollars. It would have taken several years. This guy's got a property that's worth millions and millions of dollars. You don't have that kind of money sitting in your bank account. He's probably going to win, right? He can wait you out.

Yeah, yeah, that's right.

So, all right, so I think we've covered a lot of the other questions that we have, but we'll scan down the list. So what kind of things can you help negotiate with sellers? Like, what do you see? What are typical things that maybe somebody who does it by themselves overlooks?

Yeah. So the earlier on in the process, the better, right? Because you have the most leverage before you sign the contract or before you sign the LOI, actually. Once you sign the LOI, as I said, it's not binding, right? So the LOI is just like a good faith— think of it as like a handshake. Right? You shake someone's hand; they can't sue you on a handshake, but you shook their hand. And and so what happens is, I've been involved in this where I look at an LOI and I'm that I wasn't involved in, and I'm like, "Hey, did you agree to this term?" Yeah, we agreed to that. Well, why did you agree to that? That's that's really bad for you. Well, I didn't know. Can we go back and change it? And I say, "Listen, we can, but I'm going to tell you if we start renegotiating on the LOI." That's going to piss the other side off. That's going to start kind of a bad faith because that's that's how that goes. So it's not binding, but it's it's more likely to you know break the deal off. Let's call it that. And in some cases, that's okay because it's a big enough deal. But that's just how that works. I mean, there's all kinds of terms, so it's a very broad question. You know, I had I have clients who I'm like, why are you giving them that much earnest money deposit? You know, it's probably more typical to be this much, and they have no idea. And So, you know, we we we you know shorten their liability on that net. The due diligence language, right? A right to extension on the due diligence. The financing language, the financing contingency language, which is extremely crucial in any contract, right? You know, the reps and warranties. I mean, it's very important. So for those who don't know, reps and warranties are are the representation. And warranties that each party makes to the other. And so the buyer has to make representations and warranties to the seller, which are typically very limited. You might say that you're a company in good standing. You might say you have the right to enter into this agreement. Um, it's not major, but the seller has major ones, right? And, and that's a pretty hotly negotiated point, and it depends on the property type and everything like that. But really what you're going to want to make sure is I want to make sure as a buyer I'm protected as much as possible, and that if anything they're not telling me is true, or if anything that I don't believe is true from what they're implying or telling me or the document, that I have recourse after the fact. Um, because again, as you know, commercial property is buyer beware, right? It's, it's, it's as is for the most part. So you got to do your own due diligence unless the seller lied to you, unless they deceived you, anything like that, which is different story. But, you know, it's caveat emptor in the legal world, which means buyer beware in Latin. So the reps and warranties are a very important aspect of it. And then, you know, truly, I have to have a call with every client to understand what's important to them. Where are they at? You know, what are— you know, why is— why are they buying this property? You know, is there anything unique about this situation? And incorporate that into it. You know, if there's a 1031 exchange, we want to put that language in there. So, you know, those are just kind of some general things. And I think every situation is unique, you know what I mean?

And I don't think you hit on a couple that are super— that become super important in the syndication context. One are the financing contingencies and the others are the extensions, because what I always tell our clients is You need to make sure that you have at least 90 days to syndicate a property. And if you can only get a 60-day escrow, then build in at least one, if not two, 30-day extensions. And build it in while you're negotiating the purchase agreement, because if you can build it in there, maybe they're going to ask you for a $5,000 extension fee. You try to negotiate an extension a week before closing, it's going to cost you $100,000 hard money. Especially if they have other buyers that are willing to buy the property for more than you are, you see. So, so just, you know, make sure that, that you have that time, the, the, the time you need to do this. And the financing contingency should be worded broadly enough to cover the lender's need for more time or for your need to raise the money, you know. So if you still need to get out and still bring in some more investors to get the deal to the closing table, you got to have it. So you got to have time for extensions. You got to have built-in extension provisions with reasonable fees upfront. And then you've got to have financing contingencies. Would you agree? Is there anything else you'd like to say about that, Vishoy?

No, but you're exactly right. If you come a week before closing or a week before due diligence or even a couple of days, or especially a couple of days before due diligence or closing, they're going to ask for a pound of flesh, especially Because they know how much money you've probably already expended to get to this point as a buyer between your due diligence, your environmental, your survey, your syndication, financing, your time. Maybe you've invested 60, 90, 120 days into it by now. If it's a bigger property, they know they got you, right? And especially if there's a demand for the property outside of you. Now it's all leveraged. Life is leveraged. Right? So if it's a property that's been sitting vacant for, or on the market for 10 years, maybe not. But I mean, either way, you don't want to put yourself in that situation where you're at the mercy of the sellers that you need to put— wire, wire $100,000 or $200,000 into my bank account, not with the title company, into my bank account to give you another 30 days. You know, that's a tough spot to be in, and I've been, I've been there.

Yeah, well, and we've had clients that have been there before too. And, and what you have to realize is that That money that's at risk until you get the closing table should be the money of the management team. That's not your passive investor money. Because if for some reason that deal doesn't close, you need to give everybody's money back without deduction. If you don't, you need to find a different profession after that because nobody's going to do business with you.

Yep.

You know, so yeah, I mean, we've had a couple people that have, that have tried that a few times and then tried to continue on in this business. I don't see them in this business Yeah. You know, it's like you don't, you don't use investor money to do extensions. Um, in fact, one of them I know is in jail. Um, so, yeah, for something else, for something else. But, uh, you know, it makes you wonder, you know, hey, probably could have gone to jail for this one too. Um, all right, so what about loan documents? Um, you know what, Aren't they just all, you know, boilerplate? Is there, you know, what do you do when you review loan documents, and is there some importance to that that we aren't aware of?

Yeah, so I'll give you guys a pro tip here. Um, the bigger banks, you probably are going to have very little— the bigger banks, financial institutions, whatever it is, you're probably going to have a lot less leverage to negotiate terms on the financing The loan documents, whatever. The smaller guys, like if it's private money, you can negotiate that. If it's if it's a smaller institution, if it's a credit union, whatever it is, you may have some leverage. Another pro tip: the more the the more business you give them, whether that's in the size of whether that's in the form of a bigger loan, whether you have you know a whole a whole bunch of, like, a portfolio of loans, whether you have a bunch of accounts with them, you probably have a little bit more leverage than if you're coming to them asking them for $1 million and they don't know you from Adam. So there are certain situations where you have leverage as a borrower, uh, with— when it comes to loan documents, and especially when it's in a hyper-competitive environment, um, where, where, you know, loans are— money is flowing easily and, and loans are easily accessible. And so the lenders might have to make some, um, you know, some compromises, right? Generally speaking, it's hard to negotiate loan documents. Um, there are situations like I just discussed. So what do I do? I, I at least point out what's going on in the loan documents, right? I think it's very important. The biggest thing that I look for in loan documents, other than any specific deal terms that should be in there, um, default provisions. Right? I gotta point out to you, hey, listen, if you don't provide, for example, your financials to them within 30 days of the end of the fiscal year, you're in default, right? And they said they put you in default, and you know, if you don't remedy that within X amount of days, 10 days, they can call the loan due, right? So I just gotta point that out. If your debt service coverage ratio falls below 1.2, right, you're in default. So it's, it's not always negotiating, but it is always informing you as the client, as the buyer, as the borrower, this is what, you know, is very important. Whoever is running your property, they need to, you know, very clearly make sure they don't miss these marks, these deadlines, and so forth. That's kind of the, the, you know, how, how my value in reviewing the loan documents, um, is, is kind of tiered in that manner.

Yeah, very, very important. And then there's always these carve-outs, right? And I've noticed that the Carve-outs, even on these non-recourse loans. So just to give everybody a little primer here, a carve-out is where you could become personally responsible even on a non-recourse loan if one of these violations of these carve-out provisions occurs. And I don't know if you've noticed this, Bashoy, but I've noticed these carve-out pages are expanding and never—

right?

It's 5 pages or 7.

It used to be so simple. As long as you don't defraud the bank, you're good. You know, now it's, now it's just life gets more complicated.

Yeah. Well, it's like, if anything, you know, they're, they're called bad boy carve-outs, right? If anything illegal happens at the property that causes the bank to have a loss. And so, you know, they, that's, those are pretty broadly worded from the ones I've read. Or if you have a change in management, And you don't tell them about it, you know, or you sell off a bunch of the interest, you don't tell them about it. And, you know, we often get people coming to us with properties they currently own and like, oh, well, I would like to syndicate this property even though I already own it. And it's like, well, you know, what do your loan docs say? Are you even allowed to do that or are you going to have to renegotiate the loan? And guess what? Interest rates are higher. They're not going to want to do that. They're going to say, sure, we'll renegotiate. refinance it. Yeah.

Yeah. Yeah. I, you know, I'll tell you, I'll take it a step further. Um, so, you know, when I do, like, I have friends and family and investors and they have residential properties in their portfolio and they say to me, hey, you know, if I, you know, assign this property to, or add this, add someone to the property or assign it to my LLC, is the Is the note due? I say technically the due-on-sale clause, but if you're making the mortgage payments, nobody's calling the loan due on a residential loan. The commercial world is very different, and in fact, I heard directly from big banks that you would all recognize, clients and friends of mine, that they were actively reviewing when they weren't. Think about it. They they went from in 2020, 21, lend like they couldn't. Pick up the— I mean, nobody could meet the demand of all the loans, right? And then they went into 2022 and it was the spigot had been shut off. No one was taking loans. So in order to bide their time, they were going through loan documents and trying to put people in default so they can bump the rate from 3% to 8% and 9%. This is a real story. This was happening. 100% was happening. And by the way, One of my clients that they were doing this to was a church, and they tried to put the church in default because one of the guarantors died. So yeah, it was it was it was not a good situation. I was not happy about it, and so I had to step in. But my point is, this is a real thing. Like you have to really pay attention to these things because you may think as long as you're making the payment, no one's gonna bother you, and that kind of makes sense. But these banks. They got one thing in mind, and that's their best interest. And I think the sooner people know that, you have to really pay attention to what's in the loan documents.

Yeah. Well, and I think you pointed out something that once you get a commercial loan, it's not like your residential mortgage. You don't have to make any reports of your income annually to maintain your residential mortgage, right? Once you got it, as long as you make the payments, you got it. But a commercial mortgage is not that way, right? You have to provide annual reports. They have expectations. of things that you're going to provide to them and certain levels of occupancy, maybe, you know, debt service coverage ratios, things like that that they're going to want to see some reports about. And if you're falling short, they're going to see that that's a red flag for them that this loan is in danger of defaulting. And they may start scrutinizing what's going on and maybe even try to begin some foreclosure action.

Yeah. Yeah.

Especially when they have incentive, like you said, they have incentive now to get rid of 3% loans and get people into the 8% loans because they're going to make more money and their investors will make more money. So, and they have to also try to recoup and recover from the, you know, the period where the loans were down, you know, post-COVID and all of that. And, you know, in the current economic climate. All right. So we're going to take a little commercial break here. I just want to let you guys know if you want to ask any questions of me or Bishoy, You can either raise your hand or you can type your question into the Q&A. We definitely appreciate all of our attendees, and we're super happy that you're here. But also just wanted to remind you guys that I've written 2 books on raising capital. So there's How to Legally Raise Private Money. This is a great book, a beginner's guide. If you have not raised money before, highly recommend it. It's only 160 pages. It's a good, easy read. It's got a lot of great reviews on Amazon. And then we also have How to Raise Capital for Real Estate Legally. This one is more like a desktop reference. This one's like 300 pages, a little bit more in depth. So if you have raised capital before, this is a good book for you. But if you want to get free copies, okay, a free copy of one of these books, you can text the word syndicate, S-Y-N-D-I-C-A-T-E, to 844-796- 8428. That's 844-796-3428. That is our main phone number. And actually, the, the phone number spells 844-SYNDICATE, S-Y-N-D-I-C-A-T-E, and the number 8 if you're doing it on your phone. So anyway, if you want to have a cool, uh, book mailed to you, just, you know, type in that word syndicate to that number and, uh, you'll pop up a form. You need to give us your address because we're going to mail you a physical.

Copy.

So, all right, cool. So let's get back. So don't forget to put— to raise your hand or put yourself in the Q&A. So anyway, let's think about what other things can we talk about here? So let's talk about title insurance. I think that's a big mystery for a lot of people. Like, you know, what is it? What does it do? What doesn't it do? And, you know, what should investors who are buying commercial property be looking for?

Yes, title insurance, uh, the thing that no real estate transaction can close without, right? Um, title insurance is basically a way for the interested parties in a transaction to make sure that you're receiving clear title to a property— clear, marketable title, those are interchangeable terms. And when I say interested parties, that's not only the buyer Or borrower, but that's also the lender, right? And, um, the lender will never close without a clear title insurance policy, um, just as you as a buyer should never close without a clear title insurance policy. And basically what that does is it protects you against anything that may be against the property, right? So most obvious example would be like a mortgage, right? Or like a lien. Mm-hmm. Um, those things attach to the property. Um, sometimes there's tax liens that attach to the property. Um, sometimes there's judgments against the borrowers. Sometimes there's environmental liens that are placed against a property. And maybe you're okay with that, but you at least have to know that, you know, whether the seller can remedy that or not. Um, so when you're looking at title insurance, basically if you're looking at a title insurance policy, there's a section in there called the B2s or the exceptions. And what that means is those are exceptions to the title insurance policy, which means that's not insured. So let me give you an example. If you buy a property and there's an easement on it, right? Let's say you gave, you know, whoever, you know, years ago, 50 years ago, the power company came in and ran a line under the property. You gave them an easement to do that, right? And that's okay. That's not a bad easement. But the fact of the matter is there is an easement running through the property. You cannot then cut off the right for that power company to run their wires underneath. They have an easement. They have a right to use someone else's property. That's what an easement is. Another example is, and it's probably more relevant to you all as investors, would be covenants and restrictions. on the properties, right? And, uh, you may be familiar with that, but if you're not, basically, if I was the owner of the property, you know, in the year 2000— and sorry, 1980— and I decided I am going to, uh, put together restrictions on the use of the property, and it can only be used as a church, let's say, um, forever. Um, you— if you come back, you know, if you want to buy that property, let's say it's vacant land now and you want to build multifamily on there, you have to comply with the rules of the restrictions because they're recorded against the property. Or you have to get me involved and we figure out how do we resolve this issue. But you cannot simply just ignore them because you could be liable to, you know, being sued and stopped from continuing to operate rate as a multifamily. That's just one example, but you know, the concept is the title insurance policy, uh, well, first you get a title insurance commitment which shows you all of these things. That's one of the most important things that I do as an attorney. I review it. I'm going to go through the documents. It could be from— I mean, I've reviewed things from 1905, right? I've reviewed things from over 120 years ago. Um, recorded documents that you can barely make out what they say. You have to make out what they say and, and just make sure like your use is compatible with what the land allows. And then of course make sure there's no liens or judgments or environmental issues or anything like that on title. So it's very important. It's, it's, it's very important not just for monetary but also for figuring out if this use is compatible So, I mean, that's kind of in a nutshell, title insurance. And obviously I can dive deeper if anyone wants to.

I bought a house. Well, my husband and I bought a house in Southern California one time, and we were reviewing the title insurance policy and found out, I think that the area we were in had been, you know, subdivided, you know, tens of years, like, you know, back in the '30s or something like that. And I believe that it had probably been ranch land at that time. So, but there was a restriction and then carved up into smaller pieces as time went on. And I remember reading the restriction that we could have horses and goats, but we could not have cattle on our property. It was a half-acre lot.

That's funny.

Okay, no cows. We're just not going to get any cows here in our residential property with a swimming pool and park place.

Was that the deal breaker for you guys?

Yeah. But I just remember laughing when I read that. I was like, oh my gosh, how long ago were these written?

Yeah, well, it's, it's always funny, you know, I don't really usually have too many issues with the newer stuff. If it's written within the last 20 years, they're usually reasonable and there's ways around. It's the stuff, like you said, from the '30s and '40s, and it's just like, who came up— I mean, it's just, it was a different world.

Well, yeah, some of it is just frankly illegal. So yeah.

Oh yeah, there is definitely— so it's funny if you read I'm doing that. Yeah, if you read the title policy, which no one ever does, I mean, the fine print basically says, oh, and by the way, you know, anything that's actually illegal cannot be enforced. And it's referencing obviously some of the stuff that was written before the 1960s, you know, the racist—

it's crazy.

Yeah, it's really a different, different era.

Yeah, but I love the fact that I couldn't have, you know, I can have goats. And I kept asking for one, you know, hey, can we get a goat? My husband's like, nope, we're not getting goats. But it says, all right, so let's talk about like there's other legal agreements that commercial real estate investors are going to need, like on a multifamily property. Can you talk a little bit about what other kinds of things they might have to have?

Yeah, for sure. So I mean, the first thing is Most likely the property that you're buying as an investor is going to have some type of lease in place. I mean, you could be an owner-occupant, but if you're buying it for investment purposes, it's going to have a lease. Now, whether it's multifamily and it's a bunch of small leases, uh, if it's retail, you know, depending on how many spaces, office, same thing, even industrial, um, you know, even as part of the due diligence, what I do for my clients is, you know, I can review the contracts in advance. And so I'll give you an example. Um, earlier this week I got a call from a client. He wants to buy a strip center, and the owner before had owned it for like 40 years, and it was like a hodgepodge of 6 completely different leases. Didn't have anything, no continuity, different terms. Like, it was honestly written in different fonts. It was bizarre. Not bizarre, I mean, not shocking, but it was just kind of funny. So I had to read through all these, understand, you know, basically make a sheet, you know, understand, okay, this one expires this date, they have these options to renew, etc. But this is all very relevant to his NOI, which is part of his underwriting, which is how he's buying the property. And so this kind of even starts before closing, is reviewing some of these documents that are going to be in place after the fact, like a lease. Now what I do with— what I'm going to do with him is I'm going to redo all the leases. Right? And so the lease is the most obvious document, the property management documents as well, if you're going to have a property manager. And then really any other vendor agreements you have. I mean, sometimes the property manager could just make all those agreements between them and the third party. Sometimes it's within you and the third party. But, you know, think of any kind of, you know, if you have lawn maintenance, if you have payroll, I mean, anything you have, even employee contracts. I mean, all that stuff is something that I can assist with. But the concept being, you know, any sort of contractual, you know, agreement you have tying into the property or the operations of the property is definitely something that I could assist with. Well, great.

Okay. So let's see, do we have any— looks like we have some shy attendees here. I guess we're just being very, very thorough and nobody wants to to ask us any questions, Bishoy. I feel sad. But anyway, hey, if you want to reach out to Bishoy, he's one of our attorney team members. We're super excited that he decided that he would help out our Syndication Attorneys clients. He can be reached at bishoy@syndicationattorneys.com. Reach out to bishoy@syndicationattorneys.com. So we are now offering commercial real estate transactional services, certainly in Florida and New York. There may be some limited things that we can do to help you with your transactional stuff in other states, but oftentimes we would be co-counseling with a local counsel in that case. So just wanted to thank you again, Bashoy, for coming today. It's been an amazing interview, and I hope everybody's learned a lot. We're super happy that all of you took time out of your day to be here today, and we look forward to seeing you on a future podcast. All right.

Thank you, Kim. Appreciate you. Thank you, everybody, for joining.

All right. Bye.