All Forum Posts by: David Miller

For attorney, try Chris Hanno with Stephenson Fournier.  http://www.stephensonlaw.com/Our-Attorneys/Christopher-Hanno.shtml

NC's standard residential residential agreement (which was created by the NC Association of Realtors in conjunction with the NC Bar Association) is effectively an option contract. You can terminate the contract for any or no reason during the DD period...the DD fee (as has been said) is the consideration for the seller taking the property off the market in the event the buyer terminates during that time. It is the cost of doing business - you will almost certainly need to pay it if you want to get under contract. **Note** that if you are buying a commercial multifamily property (bigger than 4 units) in NC the DD fee is not a common contractual term.

Is the 20% fee off the top in addition to what you pay yourselves to do all of the engineering, site development, construction, and real estate work? 

You are not purchasing real estate.  You are purchasing a partnership interest - which is personal property.  @Joel Owens is 100% correct that you do not pay full value.  You are taking a minority ownership position in a privately held entity where there is no public marketplace to sell the asset.  The lack of control and lack of marketability equates to a discount on the purchase price - how much of a discount depends on a lot of factors and what price is negotiated.  The operating agreement needs to be your starting point on how to purchase the ownership interest, but the bigger problem is convincing the remaining partners who have no debt to pledge their entity's asset as collateral for your debt.       

Agreed on agent or attorney - this is your chance to establish new terms, obligations, conditions, etc. with a robust lease agreement. Take advantage of it.

The fees quoted by @Jessica Zolotorofe are similar in my market (Raleigh-Durham, NC) and I agree 100% that a good lender and, more importantly, good lender counsel, have a tremendous impact on how efficiently the transaction progresses and, ultimately, the size of the borrower's final bill.  

In addition to the comments above, I believe that unimproved land plays (esp. properties with no or little entitlements) can be some of the most complex and high-risk investments you can make in real estate.  Along with that risk can be big rewards...or big pitfalls. There is almost no end to the number and types of things that can impact a land acquisition's feasibility and cost.  I would strongly encourage you to find someone in your locality with experience who can steer you through the process.  

@Bryan Hancock Language does matter very much.  In this context, I use "guaranteed" to reflect the priority of the payment, i.e. the return is paid before any promote is paid. But that certainly should not be confused with a personal guarantee or other form of guarantee to investors.  I agree that "preferred" return is better nomenclature.  

@Susan Knight - There are almost endless ways to setup syndications, but a common structure I see includes an annual guaranteed return to investors (often 8-12% depending on the geographical area, asset type and risk) that is paid out of any profit first. That guaranteed return is paid based on the LP's capital investment. Note that if the sponsor invests, they are also entitled to that guaranteed return. After the guaranteed return is paid, any additional profits are then split between the sponsor (their "promote") and rest of the investors. You might see a 20% split to the sponsor and 80% split to the rest of the investors...it can be 25/75, 30/70, 40/60...there can also be "waterfalls" wherein the promote split might at 20/80 up to a certain IRR, then goes to 30/70 at a higher IRR and then goes to 40/60 at an even higher IRR. The promote structure also depends on the geographical area, asset type and risk involved in the deal, but the goal is to align the sponsor's interests with the investors so that the sponsor and investors are both rewarded as the asset's performance improves.

@Charlie Price - I would contact Pioneer Title.  If they (or their underwriter if they are an agency) issued an owner title policy insuring title without exception to this heir's interest, then they have already insured over that risk.  They will be motivated to resolve it and, depending on the size of the potential claim, may deploy the resources to do so.  In addition, if you get comfortable enough with the risk, asking them to issue a new policy that insures the same risk they have already assumed (i.e. against a claim to title by the missing heirs) is not unreasonable.