Pop Quiz Commercial Real Estate Investing

%0D%0A%3Cdiv+id%3D%22article-content%22+style%3D%22color%3A+%23333333%3B+font-family%3A+Arial%3B+font-size%3A+12px%3B%22%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AI+read+once+that+if+you+took+all+the+real+estate+lawyers+in+Illinois+and+laid+them+end+to+end+along+the+equator+-+it+would+be+a+good+idea+to+leave+them+there.+That%27s+what+I+read.+What+do+you+suppose+that+means%3F%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AI+have+written+before+about+the+need+to+exercise+due+diligence+when+purchasing+commercial+real+estate.+The+need+to+investigate%2C+before+Closing%2C+every+significant+aspect+of+the+property+you+are+acquiring.+The+importance+of+evaluating+each+commercial+real+estate+transaction+with+a+mindset+that+once+the+Closing+occurs%2C+there+is+no+going+back.+The+Seller+has+your+money+and+is+gone.+If+post-Closing+problems+arise%2C+Seller%27s+contract+representations+and+warranties+will%2C+at+best%2C+mean+expensive+litigation.+CAVEAT+EMPTOR%21+%22Let+the+buyer+beware%21%22%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0APaying+extra+attention+at+the+beginning+of+a+commercial+real+estate+transaction+to+%22get+it+right%22+can+save+tens+of+thousands+of+dollars+when+the+deal+goes+bad.+It%27s+like+the+old+Fram%C2%AE+oil+filter+slogan+during+the+1970%27s%3A+%22You+can+pay+me+now+-+or+pay+me+later%22.+In+commercial+real+estate%2C+however%2C+%22later%22+may+be+too+late.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0ABuying+commercial+real+estate+is+NOT+like+buying+a+home.+It+is+not.+It+is+not.+It+is+NOT.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AIn+Illinois%2C+and+many+other+states%2C+virtually+every+residential+real+estate+closing+requires+a+lawyer+for+the+buyer+and+a+lawyer+for+the+seller.+This+is+probably+smart.+It+is+good+consumer+protection.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AThe+%22problem%22+this+causes%2C+however%2C+is+that+every+lawyer+handling+residential+real+estate+transactions+considers+himself+or+herself+a+%22real+estate+lawyer%22%2C+capable+of+handling+any+real+estate+transaction+that+may+arise.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AWe+learned+in+law+school+that+there+are+only+two+kinds+of+property%3A+real+estate+and+personal+property.+Therefore+-+we+intuit+-+if+we+are+competent+to+handle+a+residential+real+estate+closing%2C+we+must+be+competent+to+handle+a+commercial+real+estate+closing.+They+are+each+%22real+estate%22%2C+right%3F%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AANSWER%3A+Yes%2C+they+are+each+real+estate.+No%2C+they+are+not+the+same.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AThe+legal+issues+and+risks+in+a+commercial+real+estate+transaction+are+remarkably+different+from+the+legal+issues+and+risks+in+a+residential+real+estate+transaction.+Most+are+not+even+remotely+similar.+Attorneys+concentrating+their+practice+handling+residential+real+estate+closings+do+not+face+the+same+issues+as+attorneys+concentrating+their+practice+in+commercial+real+estate.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AIt+is+a+matter+of+experience.+You+either+know+the+issues+and+risks+inherent+in+commercial+real+estate+transactions+-+and+know+how+to+deal+with+them+-+or+you+don%27t.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AA+key+point+to+remember+is+that+the+myriad+consumer+protection+laws+that+protect+residential+home+buyers+have+no+application+to+-+and+provide+no+protection+for+-+buyers+of+commercial+real+estate.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0ACompetent+commercial+real+estate+practice+requires+focused+and+concentrated+investigation+of+all+issues+material+to+the+transaction+by+someone+who+knows+what+they+are+looking+for.+In+short%2C+it+requires+the+exercise+of+%22due+diligence%22.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AI+admit+-+the+exercise+of+due+diligence+is+not+cheap%2C+but+the+failure+to+exercise+due+diligence+can+create+a+financial+disaster+for+the+commercial+real+estate+investor.+Don%27t+be+%22penny+wise+and+pound+foolish%22.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AIf+you+are+buying+a+home%2C+hire+an+attorney+who+regularly+represents+home+buyers.+If+you+are+buying+commercial+real+estate%2C+hire+an+attorney+who+regularly+represents+commercial+real+estate+buyers.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AYears+ago+I+stopped+handling+residential+real+estate+transactions.+As+an+active+commercial+real+estate+attorney%2C+even+I+hire+residential+real+estate+counsel+for+my+own+home+purchases.+I+do+that+because+residential+real+estate+practice+is+fundamentally+different+from+commercial+real+estate.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AMaybe+I+do+%22harp%22+on+the+need+for+competent+counsel+experienced+in+commercial+real+estate+transactions.+I+genuinely+believe+it.+I+believe+it+is+essential.+I+believe+if+you+are+going+to+invest+in+commercial+real+estate%2C+you+must+apply+your+critical+thinking+skills+and+be+smart.%3C%2Fdiv%3E%0D%0A%3C%21--more--%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0APOP+QUIZ%3A+Here%27s+is+a+simple+test+of+YOUR+critical+thinking+skills%3A%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0APlease+read+the+following+Scenarios+and+answer+the+questions+TRUE+or+FALSE%3A%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AScenario+No.+1%3A+It%27s+Valentine%27s+Day.+You+are+in+hot+pursuit+of+the+love+of+your+life.+A+few+weeks+ago%2C+she+confided+in+you+that+all+she+ever+dreamed+of+for+Valentine%27s+Day+was+that+her+lover+would+show+up+at+her+door%2C+dressed+in+a+white+tuxedo+with+tails+and+a+top+hat%2C+and+present+her+with+a+beautiful+bouquet+of+flowers.+You%27ve+rented+the+tuxedo%2C+but+now+you+are+concerned+about+how+much+money+you+are+spending.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0ATRUE+OR+FALSE%3A+Since+flowers+are+pretty+much+all+the+same%2C+it+is+OK+for+you+to+skip+the+roses+and+show+up+with+a+bouquet+of+fresh+yellow+dandelions.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3@+justify%3B%22%3E%0D%0AScenario+No.+2%3A+For+several+years+you+eyesight+deteriorated+to+the+point+where+you+can+barely+see+your+alarm+clock.+You+are+now+considering+corrective+eye+surgery+so+you+won%27t+need+glasses.+Your+sister-in-law+had+corrective+eye+surgery+and+has+had+spectacular+results.+She+recommends+her+eye+surgeon%2C+but+mentions+the+cost+is+about+%245%2C700+for+both+eyes+and+that+the+surgery+is+not+covered+by+insurance.+A+few+years+ago%2C+you+had+surgery+to+correct+your+hemorrhoids+and+it+cost+you+only+eight+hundred+bucks.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0ATRUE+OR+FALSE%3A+Since+surgeons+all+went+to+medical+school+and+are+all+medical+doctors%2C+you+are+being+frugal+and+wise+by+asking+the+surgeon+who+performed+your+hemorrhoid+surgery+to+perform+your+corrective+eye+surgery.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AScenario+No.+3%3A+Several+years+ago%2C+when+you+first+got+married%2C+you+asked+a+former+classmate+who+is+a+lawyer+to+represent+you+in+the+purchase+of+your+townhome.+The+cost+was+only+%24375.+A+year+later%2C+you+started+a+family+and+decided+you+needed+a+Will.+The+same+attorney+prepared+Wills+for+you+and+your+wife+for+a+total+cost+of+%24700.+You+started+your+own+business+and+your+attorney+friend+formed+a+corporation+for+you+and+charged+you+only+%24600+plus+the+cost+of+the+corporate+minute+book.+Years+later%2C+when+your+son+was+arrested+for+misdemeanor+reckless+driving%2C+your+attorney+friend+handled+the+criminal+case+and+got+your+son+off+with+supervision+for+only+%241%2C500.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AYour+business+has+been+successful+and+you+have+built+a+pretty+sizable+nest+egg%2C+but+you+are+tired+of+working+for+every+dime+and+want+to+try+investing+in+real+estate.+You+have+your+eye+on+a+strip+shopping+center.+It+includes+a+grocery+store%2C+bank%2C+hardware+store%2C+dry+cleaners+%28on+a+month+to+month+tenancy%29%2C+a+couple+of+fast+food+restaurants%2C+a+gift+shop%2C+dental+office%2C+bowling+alley+%28with+a+lease+about+to+expire%29%2C+and+wraps+behind+a+gas+station%2Fmini-mart+on+the+corner.+The+purchase+price+is+%248%2C000%2C000%2C+but+the+net+operating+income+looks+pretty+good.+You+figure+if+you+turn+the+bowling+alley+into+a+full+service+restaurant%2Fbanquet+facility%2C+and+convert+the+dry+cleaners+into+a+24-hour+coin+laundry%2C+the+net+operating+income+will+increase+and+the+shopping+center+will+turn+into+a+spectacular+investment.+You+plan+to+pull+together+much+of+your+life+savings+and+put+down+%242%2C000%2C000+to+buy+this+strip+shopping+center%2C+borrowing+the+balance+of+%246%2C000%2C000.+You+remember+that+your+lawyer+friend+handled+the+purchase+of+your+home+several+years+ago%2C+so+you+know+he+handles+real+estate.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0ATRUE+OR+FALSE%2A+Commercial+real+estate+is+the+same+as+residential+real+estate+%5BHey%2C+its+all+dirt%2C+isn%27t+it+%28%3F%29%5D%2C+so+you+are+being+a+shrewd+businessman+by+hiring+your+lawyer+friend+who+will+charge+much+less+than+a+lawyer+who+handles+shopping+center+purchases+several+time+a+year.+%5BWhat+is+this+%22due+diligence%22+stuff+anyway%3F%5D%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AANSWERS%3A%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AIf+you+answered+%22TRUE%22+for+any+of+the+foregoing+Scenarios%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0ASTOP%21%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AThe+Quiz+is+over.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0APlease+find+a+quite+place+to+reflect+upon+your+life+and+consider+whether+the+decisions+you+make+consistently+give+you+the+results+you+desire.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AIf%2C+on+the+other+hand%2C+you+understand+that+the+answer+to+each+of+the+foregoing+questions+is+FALSE%2C+I+am+available+to+help+you+in+Scenario+No.+3.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AFor+Scenario+No.+2%2C+you+should+follow+your+sister-in-law%27s+suggestion+and+contact+her+eye+surgeon%2C+or+some+other+eye+surgeon+with+equal+skill.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AFor+Scenario+No.+1%2C+you+are+on+your+own.+%5BBut%2C+if+you+answered+TRUE+for+Scenario+No.+1%2C+you+may+be+FOREVER+on+you+own.%5D%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AInvesting+in+commercial+real+estate+can+be+profitable+and+rewarding+-+but+it+requires+good+critical+thinking+skills+and+competent+counsel.%3C%2Fdiv%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AYou+have+a+have+a+brain.+It+is+strongly+recommended+that+you+use+it.%3C%2Fdiv%3E%0D%0A%3C%2Fdiv%3E%0D%0A%3Cdiv+id%3D%22article-resource%22+style%3D%22color%3A+%23333333%3B+font-family%3A+Arial%3B+font-size%3A+12px%3B%22%3E%0D%0A%3Cdiv+style%3D%22line-height%3A+1.5em%3B+margin-bottom%3A+1em%3B+padding%3A+0px%3B+text-align%3A+justify%3B%22%3E%0D%0AR.+Kymn+Harp+is+a+seasoned+attorney+based+in+Chicago%2C+Illinois+with+30+years+experience+representing+commercial+real+estate+investors%2C+lenders+and+developers.+He+is+a+frequent+speaker+at+continuing+education+seminars%2C+and+is+a+widely+published+author+on+commercial+and+industrial+real+estate+topics+including+due+diligence%2C+entitlements%2C+commercial+real+estate+financing%2C+and+Brownfield+development+and+financing.%3C%2Fdiv%3E%0D%0A%3C%2Fdiv%3E%0D%0A