For nearly 30 years, I have represented borrowers and lenders in commercial real estate transactions. During this time it has become apparent that many Buyers do not have a clear understanding of what is required to document a commercial real estate loan. Unless the basics are understood, the likelihood of success in closing a commercial real estate transaction is greatly reduced.Throughout the process of negotiating the sale contract, all parties must keep their eye on what the Buyer’s lender will reasonably require as a condition to financing the purchase. This may not be what the parties want to focus on, but if this aspect of the transaction is ignored, the deal may not close at all.Sellers and their agents often express the attitude that the Buyer’s financing is the Buyer’s problem, not theirs. Perhaps, but facilitating Buyer’s financing should certainly be of interest to Sellers. How many sale transactions will close if the Buyer cannot get financing?This is not to suggest that Sellers should intrude upon the relationship between the Buyer and its lender, or become actively involved in obtaining Buyer’s financing. It does mean, however, that the Seller should understand what information concerning the property the Buyer will need to produce to its lender to obtain financing, and that Seller should be prepared to fully cooperate with the Buyer in all reasonable respects to produce that information.Basic Lending CriteriaLenders actively involved in making loans secured by commercial real estate typically have the same or similar documentation requirements. Unless these requirements can be satisfied, the loan will not be funded. If the loan is not funded, the sale transaction will not likely close.For Lenders, the object, always, is to establish two basic lending criteria:1. The ability of the borrower to repay the loan; and2. The ability of the lender to recover the full amount of the loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, in the event the borrower fails to repay the loan.In nearly every loan of every type, these two lending criteria form the basis of the lender’s willingness to make the loan. Virtually all documentation in the loan closing process points to satisfying these two criteria. There are other legal requirements and regulations requiring lender compliance, but these two basic lending criteria represent, for the lender, what the loan closing process seeks to establish. They are also a primary focus of bank regulators, such as the FDIC, in verifying that the lender is following safe and sound lending practices.Few lenders engaged in commercial real estate lending are interested in making loans without collateral sufficient to assure repayment of the entire loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, even where the borrower’s independent ability to repay is substantial. As we have seen time and again, changes in economic conditions, whether occurring from ordinary economic cycles, changes in technology, natural disasters, divorce, death, and even terrorist attack or war, can change the “ability” of a borrower to pay. Prudent lending practices require adequate security for any loan of substance.Documenting The LoanThere is no magic to documenting a commercial real estate loan. There are issues to resolve and documents to draft, but all can be managed efficiently and effectively if all parties to the transaction recognize the legitimate needs of the lender and plan the transaction and the contract requirements with a view toward satisfying those needs within the framework of the sale transaction.While the credit decision to issue a loan commitment focuses primarily on the ability of the borrower to repay the loan; the loan closing process focuses primarily on verification and documentation of the second stated criteria: confirmation that the collateral is sufficient to assure repayment of the loan, including all principal, accrued and unpaid interest, late fees, attorneys fees and other costs of collection, in the event the borrower fails to voluntarily repay the loan.With this in mind, most commercial real estate lenders approach commercial real estate closings by viewing themselves as potential “back-up buyers”. They are always testing their collateral position against the possibility that the Buyer/Borrower will default, with the lender being forced to foreclose and become the owner of the property. Their documentation requirements are designed to place the lender, after foreclosure, in as good a position as they would require at closing if they were a sophisticated direct buyer of the property; with the expectation that the lender may need to sell the property to a future sophisticated buyer to recover repayment of their loan.Top 10 Lender DeliveriesIn documenting a commercial real estate loan, the parties must recognize that virtually all commercial real estate lenders will require, among other things, delivery of the following “property documents”:1. Operating Statements for the past 3 years reflecting income and expenses of operations, including cost and timing of scheduled capital improvements;2. Certified copies of all Leases;3. A Certified Rent Roll as of the date of the Purchase Contract, and again as of a date within 2 or 3 days prior to closing;4. Estoppel Certificates signed by each tenant (or, typically, tenants representing 90% of the leased GLA in the project) dated within 15 days prior to closing;5. Subordination, Non-Disturbance and Attornment (“SNDA”) Agreements signed by each tenant;6. An ALTA lender’s title insurance policy with required endorsements, including, among others, an ALTA 3.1 Zoning Endorsement (modified to include parking), ALTA Endorsement No. 4 (Contiguity Endorsement insuring the mortgaged property constitutes a single parcel with no gaps or gores), and an Access Endorsement (insuring that the mortgaged property has access to public streets and ways for vehicular and pedestrian traffic);7. Copies of all documents of record which are to remain as encumbrances following closing, including all easements, restrictions, party wall agreements and other similar items;8. A current Plat of Survey prepared in accordance with 2011 Minimum Standard Detail for ALTA/ACSM Land Title Surveys, certified to the lender, Buyer and the title insurer;9. A satisfactory Environmental Site Assessment Report (Phase I Audit) and, if appropriate under the circumstances, a Phase 2 Audit, to demonstrate the property is not burdened with any recognized environmental defect; and10. A Site Improvements Inspection Report to evaluate the structural integrity of improvements.To be sure, there will be other requirements and deliveries the Buyer will be expected to satisfy as a condition to obtaining funding of the purchase money loan, but the items listed above are virtually universal. If the parties do not draft the purchase contract to accommodate timely delivery of these items to lender, the chances of closing the transaction are greatly reduced.Planning for Closing CostsThe closing process for commercial real estate transactions can be expensive. In addition to drafting the Purchase Contract to accommodate the documentary requirements of the Buyer’s lender, the Buyer and his advisors need to consider and adequately plan for the high cost of bringing a commercial real estate transaction from contract to closing.If competent Buyer’s counsel and competent lender’s counsel work together, each understanding what is required to be done to get the transaction closed, the cost of closing can be kept to a minimum, though it will undoubtedly remain substantial. It is not unusual for closing costs for a commercial real estate transaction with even typical closing issues to run thousands of dollars. Buyers must understand this and be prepared to accept it as a cost of doing business.Sophisticated Buyers understand the costs involved in documenting and closing a commercial real estate transaction and factor them into the overall cost of the transaction, just as they do costs such as the agreed upon purchase price, real estate brokerage commissions, loan brokerage fees, loan commitment fees and the like.Closing costs can constitute significant transaction expenses and must be factored into the Buyer’s business decision-making process in determining whether to proceed with a commercial real estate transaction. They are inescapable expenditures that add to Buyer’s cost of acquiring commercial real estate. They must be taken into account to determine the “true purchase price” to be paid by the Buyer to acquire any given project and to accurately calculate the anticipated yield on investment.Some closing costs may be shifted to the Seller through custom or effective contract negotiation, but many will unavoidably fall on the Buyer. These can easily total tens of thousands of dollars in an even moderately sized commercial real estate transaction in the $1,000,000 to $5,000,000 price range.Costs often overlooked, but ever present, include title insurance with required lender endorsements, an ALTA Survey, environmental audit(s), a Site Improvements Inspection Report and, somewhat surprisingly, Buyers attorney’s fees.For reasons that escape me, inexperienced Buyers of commercial real estate, and even some experienced Buyers, nearly always underestimate attorneys fees required in any given transaction. This is not because they are unpredictable, since the combined fees a Buyer must pay to its own attorney and to the Lender’s attorney typically aggregate around 1% of the Purchase Price. Perhaps it stems from wishful thinking associated with the customarily low attorneys fees charged by attorneys handling residential real estate closings. In reality, the level of sophistication and the amount of specialized work required to fully investigate and document a transaction for a Buyer of commercial real estate makes comparisons with residential real estate transactions inappropriate. Sophisticated commercial real estate investors understand this. Less sophisticated commercial real estate buyers must learn how to properly budget this cost.ConclusionConcluding negotiations for the sale/purchase of a substantial commercial real estate project is a thrilling experience but, until the transaction closes, it is only ink on paper. To get to closing, the contract must anticipate the documentation the Buyer will be required to deliver to its lender to obtain purchase money financing. The Buyer must also be aware of the substantial costs to be incurred in preparing for closing so that Buyer may reasonably plan its cash requirements for closing. With a clear understanding of what is required, and advanced planning to satisfy those requirements, the likelihood of successfully closing will be greatly enhanced.
Auto Insurance Does Not Mean The Same Things To People In The Financial Profession
It is amazing how much literature has been written about the car insurance business online. The main approach in use by the bulk of the writings is in the direction of selling car insurance, rather than offer it in the proper context of insurance product or ‘a product to protect your assets and wealth.’ That is why when searching for the phrase ‘auto insurance’ a large number of websites emerge with the ‘selling’ phrases like affordable auto insurance, or cheap auto insurance or low cost auto insurance.In the early part of 2011 and according to Google AdWords there were 8,100; 74,000; 9,900 monthly searches for the above key phrases, respectively. On the other hand, there were only 110 searches for the phrase ‘reliable auto insurance’, 170 searches for ‘quality auto insurance’, and 8,100 for ‘top auto insurance companies.’ It is rather easy to conclude that most of the searches on line are about price, not quality of insurance.A basic principle in marketing is to understand what people ‘want’ and design and package your product or service to meet what the folks want. Looking at those numbers we can tell that most people want cheap auto insurance. As a marketer, if you design any campaign without considering that analysis you may eventually flunk the marketing tests, close your website and go do something else.So what’s the difference between auto insurance polices? From a ‘financial planning viewpoint’ car insurance comparison should never be based on price only, and perhaps most people agree that cheap insurance is not necessarily the best car insurance. But what most people do not know is that an insurance policy with the best rated company may also be one of the most problematic contract. An auto insurance policy should be compared in reference with three factors:1. Price: of course the cheaper the better.2. Company Rating: Non standard companies are more flexible than their standard or preferred counterparts with regard to past violations found on the MVR activities of the drivers and the credit score of the car insurance applicants. However, non standard companies are harsher than others in customer service and paying claims. Most of complains come from non standard insurance companies. While preferred companies do not hesitate to quickly pay for smaller claims suck as seven or eight thousand dollars claim, or even little more; all companies from top to bottom will try to examine the application to see if they have to or do not have to pay a $100,000 claim.3. Liability Limits. This is the most ignored, least understood, but is the most important aspect of the policy which affect customers during time they need the insurance. It measures how much protection you have in the event you get sued. A professional financial advisor will never ever sell you an auto insurance policy at low limits if he/she has enough information that you and your spouse have enough wealth to be sued for in the event that you or a family household member cause a major auto accident and your car insurance pays the maximum on the policy which turns out not to be enough.There are many insurance policies sold with superior insurance companies at the lowest liability limits mandated by the state. In the State of Illinois these limits are 20/40/15, which means that in the event you cause an accident that is your fault and you get sued by others, then your company will pay to others on your behalf no more than $20,000 for bodily injury for one person, no more than $40,000 for bodily injury for all other people in the accident, and a maximum of $15,000 for any and all property damage you case in that accident. If you are a business owner and you cause a major accident resulting in a unbeaten lawsuit of $300,000 and your insurance company maxed the payment on the policy and paid $20,000, the difference of $280,000 will have to come from your own money!Financial Planners and Auto Insurance Marketers Are Not in HarmonyFinancial planners are not in harmony with insurance marketers about the weight that needs to be placed on limits of liability in auto insurance. Marketers like to stress the aspects of price and company rating, while financial planners like to stress the importance of liability limits first, then company rating second, and perhaps price at a later stage.Although financial planners and auto insurance marketers have the common goals of maximizing their earnings while providing their services, the scope of their operations is different. Auto insurance marketers make their money by selling as many polices as they can have. The marketer does his best to make as many sales as possible, hence making small amount of money on too many policies sold. Financial planners work differently as they try to make big money from each of the few number of customers they have. Selling an auto policy is not the primary concern of a financial planner, but for him or her auto insurance is one of the fundamental subjects of the financial planning process.Car insurance agents look at auto insurance as a way to protect the car itself in the event of theft, fire or another loss, besides the fact that it’s the law. Financial planners look at auto insurance as an integral part of their clients risk management process. To the financial planner an auto policy is not to repair the car in the event of loss, but is mainly about protecting the assets and wealth of the insured, especially against potential lawsuits.Some auto insurance marketers would even suggest to cut down on liability insurance as a way to save money. No sound financial planner will ever make such a suggestion. No way!When does height matter?How high your liability limits should be is the main issue that should prevail when you buy car insurance. You probably need only the minimum liability limits mandated by the states if /when(1) you shopped for higher limits and could not afford it, (2) your current assets or wealth is not big enough to expose you to further lawsuits in the event of at fault auto accident. (3) you are a high risk driver where no one else wants to insure you except at the minimum limits. But, if you have certain amounts of assets and wealth, or is expected to have sizable assets or wealth, then you need to worry about the height of your liability limits.What about if you are not wealthy with plenty of assets? Even for people with little or no wealth, the height of liability limits should be much of a concern to them. This is due to the fact that liability insurance contains certain coverages to pay for your bodily injuries in the event that you get hit by a vehicle that is legally uninsured, or is insured but the insurance on that vehicle was not enough to cover your bodily injuries. According to the Insurance Research Council, approximately 15% to 17% all drivers in the United States are uninsured. Coverages for Uninsured Motorist (UM) and Underinsured Motorist (UIM) vary from states to states with regard to their mandatory status and limit amounts. In Illinois UM is mandatory at the limits of $20,000 for bodily injury per person and $40,000 for bodily injury per accident. Underinsured motorists coverage is not mandatory in Illinois but insurance companies must offer it to clients for policies issued with liability over the state limits. Clients can still reject to have higher uninsured/ underinsured motorists but it must be in writing. As you can see, your liability only policy provides coverage for your bodily injuries, and making sure that you have high limits on both liability, UM and UIM can have tremendous effect on your life.
Alstons Furniture – A Brief History
The Alston family has been involved with furniture for over two centuries. As far back as 1776 there were Alstons repairing furniture in their Chelsea workshop.The present family’s direct ancestors started the business that became the Alstons Furniture business we know today in Sudbury, Suffolk. William Alston (1839-1919) and his brother Ambrose (1834 – 1902) were both master cabinet makers during the middle of the 19th century. William Alston later became a furniture dealer as well, selling from premises in 95 North Street, Sudbury. The Alstons Furniture business prospered and moved to 9 Old Market Place, Sudbury in 1875 Both of William Alston’s sons, Hammond and Percy worked in the business and together they then created one of the first all electric workshops.The premises at Old Market Place became a retail furniture shop as well, with additional workshops. One of which was to eventually form the beginnings of the Alstons Furniture Upholstery operation much later on. In 1921 Percy Alston’s son Leslie started an apprenticeship with his father and then completed this at Fisher Trade Woodworking in London’s East End.In 1937 Leslie started his own manufacturing business at a redundant coconut matting factory in Long Melford. The business was set up with a £6,000 bank loan. Leslie’s brother Roy joined him there to help run the new venture. The company later adopted the trade mark Albro as an abbreviation of Alston brothers, this continued into the 1980′s.During the Second World War, the factory in Long Melford switched its production to ‘utility’ bedroom and dining furniture. Extra work was also taken on to manufacture coffins for the war effort.Later in the war, the Long Melford factory was burnt out and new premises were sought in Ipswich. Initially production was resumed within Wrinch’s factory in Nacton Road, Ipswich. Land was also purchased adjacent to Wrinch’s and a factory was built by joining war surplus Nissen huts together to form a linear building and a continuous furniture production line was created within it. This temporary structure survived until 1971 when a new building was erected over the old huts ensuring that not an hour of production was lost.The Alstons Furniture cabinet business has remained at this site to this day. During this time a new head office had been built and a programme of continuous investment in machinery maintained. Alstons Furniture has manufactured almost exclusively bedroom furniture during this period. In the 1950′s and 60′s this was centered on suites of bedroom furniture of veneered teak, walnut and mahogany finish (a suite comprised a ladies wardrobe, a gents wardrobe and a dressing table). The 1970′s saw the introduction of modular bedroom furniture ranges in veneered and painted finishes.In more recent years the Alstons have become a market leader in the production of traditional and contemporary bedroom ranges of laminate and painted finish.Leslie Alston remained in charge of the business until his death in 1976 at which point his oldest son Rex (John) took over as Managing Director with Leslie’s brother Percy (Roy) as Chairman. In 1979 Alan, Leslie’s other son became Chairman and Managing Director of Alstons Furniture, assisted by his bother Rex and with their cousin Noel (Percy’s son) as Sales Director. John P Alston joined the family business, Alstons Furniture, in 1974 becoming a Director in 1987 and Managing Director in 1995. In 2008 David Alston became Chairman of Alstons Furniture, taking on this role directly from his father. Also in this year John’s daughter Jessica Alston joined Alstons Furniture as a design assistant.The Upholstery business flourished and within 10 years, further satellite factories were opened in Hadleigh, Suffolk and Clacton, Essex.The recession of the early 1980′s saw a contraction of Alstons Furniture and the satellite factories were closed down and production and investment consolidated at the Colchester site. Up until 1995 Alan Alston continued to be responsible for the running of Alstons Furniture. In 1995 David Alston, Alan’s youngest son became Managing Director of the company and the responsibility passed on.In 2008 John Alston took on the role of chairman of Alstons Furniture from his father.During the life of the company it has manufactured sofas, sofa beds, sideboards, chairs and recliner chairs.Alstons Furniture continues to make all its production from its factory in Colchester and is now one of the leading producers of upholstery in the UK.