Why You Need An Attorney For Your Commercial Real Estate

Why You Need An Attorney For Your Commercial Real Estate Loan

The attorney for the borrower is a critical team member in a commercial real estate loan transaction. The closing process is by nature full of legal documents and requirements. The lender will most likely have an attorney representing them so the smart borrower will get a competent real estate finance attorney on their side. Here are some of the critical areas that are typically handled by your lawyer.

Loan document review: Loan documents are typically prepared by lender counsel and the drafts forwarded to the borrower. The borrower and borrower counsel will then review the loan documents, prepare consolidated comments and return them to lender counsel. This process typically goes back and forth for several rounds before the loan documents are in final form. The amount of negotiation depends on many factors including lender flexibility, loan size and borrower creditworthiness.

Cash management agreements: These documents can be complicated and a long lead time item in the loan closing process. Start work on cash management early to make your scheduled loan closing date. Your attorney should also be prepared to intervene in issues of financial indemnity for the third party deposit bank and negotiating the predetermined release of a cash trap and reserved funds.

Organization documents: The borrowing entity must have all organization documents in order well before closing. If a new entity is required ask your attorney to get started early so the lender can review and mark the item completed on the closing checklist.

Third party agreements: Your loan might require special agreements with anchor tenants, lessors if you are doing leasehold financing, partner consent with a joint venture, or local government department approvals. Your attorney can draft the agreements and coordinate expedited handling and signature to ensure a timely closing.

SNDAs and estoppels: The borrower or borrower counsel is usually responsible for completing, distributing, tracking, collecting and returning these documents to the lender prior to closing. The lender typically provides a form document with placeholders to merge tenant lease data. Ask your attorney to review the documents prior to sending to your tenants. Negotiate with your lender to limit the requirement and return less than 100% of the total leases. Lenders will usually insist on getting these documents from your major leases. Get started early because this is a long lead time item.

Coordinate borrower signatures: Borrower counsel can expedite signatures on loan documents prior to closing. Some lenders allow stand alone signature pages to be attached to the documents after borrower counsel approves their release.

E-document warehouse: Large law firms and more advanced smaller firms have electronic storage systems that allow all parties to the loan closing access to critical documents. The system reduces the amount of paper flowing between the parties and ensures everyone is working with the most current version.

Coordinate the title company: An experienced real estate attorney usually has great communication with the title company because of previous loans they have closed. Your lawyer can interface with the escrow officer to make sure borrower escrow instructions are submitted, wiring instructions have been provided by the lender and borrower, and document recording takes place in the proper sequence.

Loan summary and closing binder: Ask your lender to prepare a summary of the key legal terms in the loan documents. You can merge this with your business loan summary for a quick-access overview of your new debt. Your lawyer can also prepare a closing binder with all the executed loan documents in electronic or paper form.

Miscellaneous legal items: Borrower counsel performs many other critical tasks during a commercial real estate loan closing. One of the most important functions is managing lender counsel by negotiating key legal provisions, clarifying local law and overcoming legal obstacles to closing. A good lawyer will quickly resolve legal issues that can hold down one of the biggest loan closing costs, your legal bill. Your attorney will also coordinate with local counsel if necessary, provide legal opinions, monitor the closing checklist and draft a property management agreement if required among many other things.

I am not a lawyer but have worked with many of them during $4 billion of commercial borrowing. This article is not intended to give legal advice or replace the expert help you should expect from a qualified attorney. So do yourself a favor and hire a lawyer with a strong track record for your next commercial real estate loan.

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