Protecting yourself during property expansion

About 35 million people live in apartments in the United States, and that number is growing. That means many apartment and condo complexes are experiencing growing pains. Here's how to help safeguard yourself during expansion.

As we know, growing pains can really hurt, but – as they say at the gym – no pain, no gain!

It’s important to have good partners when it comes to expanding your property holdings. Whether you are buying out the existing building across the street or starting a new site from the ground up, you will have a lot of capital at stake. Each deal has its share of snares and thorns along with its potential for a big win. That’s why financial protection and solid legal, investment and insurance counsel are needed in every plan for expansion.

Lenders want to know specifics on valuations and long-term performance outlooks before they commit funding to a purchase or build. Much of that information will come from the representations made by the property owner from who you intend to buy. Information spans many areas, including property value, rental market conditions, building codes, soil conditions, zoning, parking, partners’ financial history, builders’ track records and financial strength, along with many other areas of concern. The goal of all parties is to be fully informed of the strengths and potential weaknesses of buyers, sellers and builders that could help or hurt the purchase/sale/build process.

The representations and warranties made in the negotiation process between sellers and purchasers underpin much of a real estate transaction. If that information is faulty, it could have a negative impact on deal and cost one side or the other a lot of money in wasted time and fees for a deal that isn’t going to happen. It could alternatively generate other types of costs, such as those needed to keep the transaction moving forward. Whatever the case, faulty representations and warranties in large real estate transactions can do great financial harm.

Since every time a seller makes a representation or warranty he exposes himself to possible degradation of the sales price, he has a strong incentive to be selective about the information he shares. If the sale is competitive, the buyer might be at a disadvantage in terms of demanding more information or assurances. In those cases, there could be an unpleasant surprise after a bid is approved.

Imagine the case where you buy a site only to find buried waste when you excavate. Or how about the building that you discover, only after signing, has a serious behind-the-wall or foundation problem that couldn’t be discovered by inspection but that probably was known to the prior owner. In many of these cases, the seller’s failure to disclose known problems could cost the new owner large sums to repair or rectify. Without insurance to cover the circumstances, the new owner could face financial calamity.

These hazards always exist when you are involved in a large-scale realty project. Representations and warranties insurance is one of the critical protections buyers should consider. Although it is a common protection in acquisition transactions, policies are not “standard,” instead they are tailored through negotiations to reflect the specifics of particular deals. Your agent will assist you with the entire process and will work with your legal counsel and realtor to craft an insurance contract that meets your needs. In conjunction with that, your agent might also suggest environmental insurance or pollution insurance in case the property site is found to have toxic materials that affect third parties or that need remediation.

The Russell Agency has the ability to work with apartment owners & property managers and condo boards to develop excellent protection for real estate transactions. It just requires quality research and expert planning, two things The Russell Agency is well poised to assist with.


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