Be the Quarterback

In this day and age where financial institutions, publicly traded companies, and REITS are often involved in commercial real estate transactions, particular attention needs to be given to any financial changes from the initially approved deal. Sarbanes Oxley ('SOX') requirements will influence a publicly traded company's procedures in connection with approval of the initial transaction terms, subsequent changes, as well as requirements for documented checks and balances that will safeguard the company's interest so that transactions are not altered without full disclosure and re-approval in accordance with the company's documented SOX compliant procedures.

More and more companies are looking to their internal legal staff to document compliance with the company procedures. If you are an in-house counsel, you will need to 'quarterback' the deal through the company's compliance procedures. Add the company procedure to the checklist. If any change to the transaction requires a re-approval of the transaction, the checklist should note the need for the approval along with the estimated date for completion. Track the item at each meeting/call until completed. Financial changes to the transaction should always be tracked; generally, the basis for undertaking any transaction is the underlying financial terms and benefits of the transaction. It may be useful to track financial changes by the various trades involved in the transaction (i.e., environmental, site work cost, construction cost, governmental approval requirements, etc.). As each area of your checklist is discussed, include the tracking of any changes to the economics of that trade area and then keep a running summary of the cost changes at the end of the checklist. You will need to highlight action points, designate when an item requires a re-approval of the transaction, and then make sure the appropriate team member follows the company procedure for any required re-approval.

Disseminate Information

The checklist is a working tool and should be used by the team to organize the transaction process and disseminate information to all involved in the transaction. This last point needs emphasis: 'disseminate information to all involved in the transaction.' One of the biggest issues companies have faced for years is the failure to share critical information. The failure to share critical information with all team members is a recipe for disaster in a deal. It is recognized that the various team members working on a deal work independently to accomplish particular goals required to complete a transaction; however, each individual's responsibilities generally influence responsibilities of other individuals. There is a need to share information on issues discovered by one team member that may require action by another.

For example, if the site engineering department reaches an understanding on the sharing of utility capacities with a third party, the real estate attorney needs to be notified so that an agreement may be drafted to incorporate the terms. It is equally important for the construction group to be aware of the agreement so that the appropriate utility work is undertaken to reflect the sharing of the various utility capacities. In addition, the real estate manager may be working on other deals for the site that will influence the sharing of utility services; thus he or she needs to be informed.

Level of Detail

In order to keep the checklist as a working tool for each member of the team, the level of detail in each section of the checklist may need to vary from trade to trade. However, it is always a good practice to start with a detailed form checklist to ensure nothing in the deal gets overlooked. Once you have prepared a detailed initial checklist, adjustments can be made to delete details of certain sections not necessary for the transaction currently under consideration. A sample of a checklist section covering 'permitting, entitlements and zoning' was set forth last month to illustrate the detail that should be covered by the checklist and the meeting/conference call on a typical development transaction.

The illustration lists many items for discussion under the section and contemplates that the information discussed for each line item be included on the checklist so that an accurate record of the status, responsible party, timing, costs, and specific permits and approvals required for the entitlements be discussed, reviewed, and listed so that nothing is overlooked. The last thing you would want to discover is that another permit is needed that will take six to nine months to obtain when the scheduled closing is only a few weeks away.

Conclusion

With all the various trades and large teams of experts involved in the contract negotiations process, it is easy to see why a lack of communication and coordination can be problematic. The real estate attorney must be the quarterback and bring the team together. Planning and coordination through the use of a checklist will ensure compliance with company policies and will ensure that nothing is overlooked. The goal of any team is to execute a game plan by using teamwork and precision in its plays.

However, the quarterback also needs the ability to vary the plan if the initial strategy falters. When the quarterback guides the transaction team, the detailed checklist will foster teamwork and lay out the plays needed to get to the goal line. All team members will also have the ability to see when the game plan must vary if unanticipated obstacles are encountered. The dissemination and coordination of the information by the quarterback will allow the entire team to adjust its actions and time frames to overcome obstacles and still reach the goal line.

Steven J. Roberts is Vice President of Real Estate Law for The Stop & Shop Supermarket Company LLC. The author wishes to thank Aubrey Roberts, a student at Vanderbilt University, for her contribution to this article.

Part Two of a Two-Part Series

Last month's installment discussed how a real estate attorney should create a checklist to bring a transaction from concept to fruition. Part Two of this series addresses compliance issues, dissemination of information, and the level of detail of the checklist.

Compliance Issues

In this day and age where financial institutions, publicly traded companies, and REITS are often involved in commercial real estate transactions, particular attention needs to be given to any financial changes from the initially approved deal. Sarbanes Oxley ('SOX') requirements will influence a publicly traded company's procedures in connection with approval of the initial transaction terms, subsequent changes, as well as requirements for documented checks and balances that will safeguard the company's interest so that transactions are not altered without full disclosure and re-approval in accordance with the company's documented SOX compliant procedures.

More and more companies are looking to their internal legal staff to document compliance with the company procedures. If you are an in-house counsel, you will need to 'quarterback' the deal through the company's compliance procedures. Add the company procedure to the checklist. If any change to the transaction requires a re-approval of the transaction, the checklist should note the need for the approval along with the estimated date for completion. Track the item at each meeting/call until completed. Financial changes to the transaction should always be tracked; generally, the basis for undertaking any transaction is the underlying financial terms and benefits of the transaction. It may be useful to track financial changes by the various trades involved in the transaction (i.e., environmental, site work cost, construction cost, governmental approval requirements, etc.). As each area of your checklist is discussed, include the tracking of any changes to the economics of that trade area and then keep a running summary of the cost changes at the end of the checklist. You will need to highlight action points, designate when an item requires a re-approval of the transaction, and then make sure the appropriate team member follows the company procedure for any required re-approval.

Disseminate Information

The checklist is a working tool and should be used by the team to organize the transaction process and disseminate information to all involved in the transaction. This last point needs emphasis: 'disseminate information to all involved in the transaction.' One of the biggest issues companies have faced for years is the failure to share critical information. The failure to share critical information with all team members is a recipe for disaster in a deal. It is recognized that the various team members working on a deal work independently to accomplish particular goals required to complete a transaction; however, each individual's responsibilities generally influence responsibilities of other individuals. There is a need to share information on issues discovered by one team member that may require action by another.

For example, if the site engineering department reaches an understanding on the sharing of utility capacities with a third party, the real estate attorney needs to be notified so that an agreement may be drafted to incorporate the terms. It is equally important for the construction group to be aware of the agreement so that the appropriate utility work is undertaken to reflect the sharing of the various utility capacities. In addition, the real estate manager may be working on other deals for the site that will influence the sharing of utility services; thus he or she needs to be informed.

Level of Detail

In order to keep the checklist as a working tool for each member of the team, the level of detail in each section of the checklist may need to vary from trade to trade. However, it is always a good practice to start with a detailed form checklist to ensure nothing in the deal gets overlooked. Once you have prepared a detailed initial checklist, adjustments can be made to delete details of certain sections not necessary for the transaction currently under consideration. A sample of a checklist section covering 'permitting, entitlements and zoning' was set forth last month to illustrate the detail that should be covered by the checklist and the meeting/conference call on a typical development transaction.

The illustration lists many items for discussion under the section and contemplates that the information discussed for each line item be included on the checklist so that an accurate record of the status, responsible party, timing, costs, and specific permits and approvals required for the entitlements be discussed, reviewed, and listed so that nothing is overlooked. The last thing you would want to discover is that another permit is needed that will take six to nine months to obtain when the scheduled closing is only a few weeks away.

Conclusion

With all the various trades and large teams of experts involved in the contract negotiations process, it is easy to see why a lack of communication and coordination can be problematic. The real estate attorney must be the quarterback and bring the team together. Planning and coordination through the use of a checklist will ensure compliance with company policies and will ensure that nothing is overlooked. The goal of any team is to execute a game plan by using teamwork and precision in its plays.

However, the quarterback also needs the ability to vary the plan if the initial strategy falters. When the quarterback guides the transaction team, the detailed checklist will foster teamwork and lay out the plays needed to get to the goal line. All team members will also have the ability to see when the game plan must vary if unanticipated obstacles are encountered. The dissemination and coordination of the information by the quarterback will allow the entire team to adjust its actions and time frames to overcome obstacles and still reach the goal line.

Steven J. Roberts is Vice President of Real Estate Law for The Stop & Shop Supermarket Company LLC. The author wishes to thank Aubrey Roberts, a student at Vanderbilt University, for her contribution to this article.