There are several necessary steps when doing due diligence on a real estate loan syndication. Before making any decisions, one has to inform themselves on the arrangers of the deal; whoever it may be (bank, government, a company, individual). It is essential to first analyze if the arranger has good credit and is trustworthy to pay back any loans if necessary. One can do this by looking at their solvency, funding and tax position, credit record, and their past experiences. It is also essential to investigate all other parties/investors involved. Make sure that they have good credit as well and that they will not jeopardize the deal. After determining such, find out the projected value and costs of the property. Do not hesitate to ask the arranger of the deal for all the documents they obtained while they were doing there due diligence. These documents could include:

  • Current tenant information
  • All present uses of the real estate
  • Any third party reports or inspections initiated by seller
  • Any surveys of the land and improvements in seller’s possession
  • Seller’s current policy of title insurance
  • Any applicable condominium documents
  • Notices of any pending or threatened litigation or governmental action relating to the real estate or seller
  • Notices of any environmental conditions
  • Notices of any new or special assessments or taxes
  • Copies of all current bills for the property
  • Service contracts
  • Evidence of current zoning
  • As-built plans and specifications
  • All construction related documents including warranties
  • Evidence of insurance.
  • Title to the property and/or legal restrictions affecting its use (zoning, Private land use controls, Availability of licenses)

After making sure those documents are acceptable, one should go to the property being invested in and inspect it thoroughly to make sure that the physical condition of the property allows for the intended use. Certain things such as adequate access to public streets, parking, and environmental contamination are a couple of checkpoints to be aware of. Make sure everything looks as advertised and that all is functioning properly. If all is as expected, go ahead and sign the deal.

To finalize the deal, certain documents such as these are advisable:

  • Promissory Note
  • Personal Guaranties
  • Assignment of Rents and Leases.
  • Security Agreement
  • Financing Statement (sometimes referred to as a “UCC-1”, or “Initial Filing”).
  • Evidence of Borrower’s Authority to Borrow; including:
  • Evidence of Borrower’s Existence In Good Standing;
  • Satisfactory Commitment for Title Insurance

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