Multifamily Property Transactions: A View from the Closing Table

Anthony Simari

On September 1, 2018, Anthony T. Simari, Esq., joined Holm & O’Hara LLP as a partner in our real estate group focusing on multi-family properties. Anthony is a seasoned professional; in each of the last five years, he has closed transactions for properties collectively valued at more than $200,000,000. After his first six months with the firm, we had a conversation about some of the most important—and interesting—aspects of his work.

What drew you to work in real estate law and especially on transactions involving multifamily properties?

When I first got out of law school, I wanted to be a trial attorney, always in a courtroom and never in an office. I got part of my wish and ended up doing foreclosure work as a litigator. It was stifling, with strict instructions not to make changes to the documents or be creative. Fortunately, I was assigned some closings and then was able to join a group of three attorneys responsible for about 150 commercial closings per year. There was plenty of room for creativity—as long as I was persistent. In this field, some new issue comes up every day and it’s so easy to say, ‘that’s not going to close’. My duty to my clients is to find a way to make things happen. It might be a daunting-looking package of 19 buildings with over 30 different commercial tenants and 7 different loans. On the surface, it’s incredibly complex; once you start to break it down into smaller parts, it’s manageable. Everything gets done by staying focused and taking one piece at a time.

What is the most unusual thing you have ever encountered in a deal?

Fairly early in my career, a partner in my firm assigned me to manage a “refinance” that turned out to be anything but. Our client was buying out his partner, who had just done a stint in federal prison for selling fake insurance policies and had to satisfy a $20 million judgment. The seller’s attorney had already walked away with the contract deposit and the referee appointed to conduct the sale had to leave the closing with a check. While it was a potentially heated situation—with a lot more issues than I had been led to believe—we stayed nice and cool and leveraged our position to negotiate hard. In the end, our client was able to acquire full title for less than the property’s value. The referee thanked me and said the property would never have closed without my work.

How can brokers ensure that their transactions go smoothly and what mistakes do brokers typically make?

First, I would say that the common animosity between brokers and attorneys is not worthwhile. I understand where it comes from; in most views, the broker works to get the client to take risks, while the attorney works to protect the client from risk. So there’s always a fear that, in the three or so months an attorney is working on a typical closing, they can blow up a deal it may have taken the broker 2 years to put together. The fact is, everyone needs to take risks; good attorneys help their clients manage those risks, not simply walk away from them. To make things go smoothly, brokers can make sure that at least one person at the table is a commercial real estate attorney with a track record of closing. Another thing brokers can do to avoid late complications is to make sure all the details get brought into the open. There are nuances like unresolved violations or the ability for a seller to pass along mortgage tax savings by assigning the existing mortgage. These are all valid points of negotiation that can impact the way the deal eventually comes together and closes. Rather than gloss over them, brokers would do well to bring them up earlier in the process.

What is the single most important piece of advice you can give to a prospective buyer of a multifamily property?

Without doubt, it is 100% due diligence. You have to assume that a seller may not know certain things or may not be entirely truthful about them. Never ask the seller for something you can verify for yourself. Rather than viewing due diligence as needless work, buyers and their attorneys should look at it as a powerful negotiation tool. I’ve had circumstances where the seller says the building has a certificate of occupancy for 83 units, but the actual C of O clearly says 80. If you know that ahead of time, it affects the sales price. Also, sometimes buyers agree to buy a property with the violations intact if the seller agrees to pay the penalties. Without exhaustive due diligence, the seller could propose a cap on those penalties and the buyer could be out significant money post-closing.

What do sellers of multifamily properties frequently overlook?

Most sellers overlook the full scope of tax and financial consequences. Mortgage prepayment penalties and the 3.025% New York City transfer tax add up. Also, the type of entity that took title can make a huge difference; if the property is vested in a C-corporation, you will lose a lot of value in the sale to taxes. One client who tried to sell a building ended up with tax consequences bordering on 70%. When a new client comes to see me about selling a property, my first question is, “did you speak to your accountant?” It normally leads to discussion of costs and possible tax deferring mechanisms such as 1031 exchanges or investments in opportunity zones.

What do you think sets you apart from others in your industry?

I’ve worked with a lot of good attorneys on both sides of the table. While I wouldn’t say it absolutely makes me unique, I always try to show up on behalf of my client projecting that we want the deal, that we want it to be equitable and that we are not there to hurt anyone. Depending on the circumstances, if I have more experience, I might offer to draft the closing documents, even if I’m representing the buyer. It just creates a better atmosphere of trust and cooperation so we can get something accomplished. The other thing I like to do is encourage my clients to talk to me without worrying that I am going to bill them for every minute. Clients don’t pay legal fees; they pay for results. They’ll pay double for the results they want, nothing for the results they don’t want. I’d rather have a client bend my ear about a $2,000 problem which we may be able to solve with a quick chat (and not bill them for it), than have it become a $60,000 problem with commensurate legal fees later on.