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.

It is one thing to have a handle on where to invest; but quite another to have confidence in how to invest money for 2015 and beyond. The big difference lies in asset allocation, or how to invest money across the asset classes. The “how to” will depend on your financial objectives, comfort level and the markets in 2015 and beyond.There are 3 or 4 basic asset classes, and we’ll start with where to invest in stocks. Stocks are the growth engine of your portfolio, and most investors should concentrate on large-cap diversified stock funds that pay dividends of about 2%. This way you’ll own a small piece of a large portfolio of America’s largest, well-known companies. For the vast majority of Americans with longer-term financial goals (like retirement) this is how to invest money for growth without excessive risk.To keep market risks lower stay away from low-cap (small-company) stocks and funds; and growth stocks and funds that pay little or no dividends. With the stock market hitting all-time highs, this is not where to invest for 2015, especially if riskier stocks don’t fit your comfort level. Down-side risk is rising for 2015 and beyond, and a market reversal will likely hit the smaller-company and high-growth sector hardest. And don’t increase your asset allocation to stocks in general. That’s not the success formula for how to invest money when prices are high.For most of the people most of the time, a 50% to 60% asset allocation to stocks is commonly recommended as the standard answer to how to invest money for longer-term goals. If retirement is approaching, or this just doesn’t fit your comfort level, a lower asset allocation is your answer to how to invest for 2015 and beyond – for greater peace of mind. If you would sleep better with an asset allocation of 40% or less in stocks, go for it.The second asset class is bonds, and when held in conjunction with stocks they add balance to your portfolio and offset risk. Few individual investors have either the experience or the inclination to sort through bond issues. That’s why professionally managed bond funds are the average investor’s answer to where to invest for 2015 and beyond. With today’s high bond prices (due to recent record-low interest rates) you’ll want to be careful here in terms of exactly where and how to invest money.The answer to how to invest money here: avoid the temptation of higher dividends offered by high-yield (junk) and long-term bond funds. Junk funds pay more due to the low quality of bond issues held and the risk associated with default (of interest payments and/or principal). But the real risk for 2015 and beyond is interest rate risk, and long-term bond funds are high risk in that department; and are definitely not where to invest money in bond funds at this time. Your best bet for risk vs. dividend income: go with medium to high quality, intermediate-term bond funds for 2015, 2016 and beyond.For many years now the financial industry has suggested an asset allocation of about 40% or so in bonds as a rule of thumb for how to investment money for longer-term goals. As we look down the road to 2015, 2016 and beyond keep in mind that there is a bond market and it works much like the stock market. Bond prices and bond fund values fluctuate and usually less so than stock prices and stock fund values. If interest rates rise significantly, bonds and bond funds will lose money. Long-term bond funds will be hardest hit. That’s the way bonds work, and why it is crucial that you know how to invest money in them for 2015 and beyond.If high bond prices and an asset allocation of 40% don’t fit your comfort level, go with a lower asset allocation to bond funds. Now the question is how to invest the rest of your money if your asset allocation to stocks plus bonds adds up to less than 100%. The third asset class is often referred to as just “cash”, or safe liquid investments. As to where to invest for safety and easy access to your money consider a money market fund. As interest rates rise money market fund dividends automatically follow suit. Plus, you can easily move money from fund to fund within your fund family.If you are more adventuresome consider adding the fourth asset class, called alternative investments, to your asset allocation. These are your alternatives for how to invest money to make higher returns in 2015 if the stock market tanks. Examples include: real estate, gold, and natural resources like oil. The good news is that there are specialty stock funds that specialize in these sectors, so that’s where to invest to keep things simple. While stocks and bonds have become pricy, both gold and oil have dropped in price. If either starts to look cheap, that could spell opportunity in 2015, 2016 or beyond.