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Panel Contribution: Outlook: How Can Open Space Add Value to Real Estate Development?

Panel Contribution: Outlook: How Can Open Space Add Value to Real Estate Development?

In an open discussion on LinkedIn about open space value in real estate development, Howard had the following to contribute:

“Open, green space can take many forms, not simply that of a carpet of grass which serves to add a pallet of green to the exterior aesthetics of say, a multi-family community.

“I believe that such spaces can serve a number of purposes, which speak to the lifestyle of the community being promoted as place to live by the sponsoring developer. For instance, a well-planned park area of a self-contained, private, community can serve to enhance the lifestyle, comfort, exterior views, security and convenience of its residents. Notably, the park element should provide interactive aspects rather than simply serving as a passive :”green area” as a component to the development.

“Think about vita courses, jogging trails, segregated doggie walk areas, interactive fountains of the Disney type which serve as an art form and a “cooler” for kids to run through during hot summer days. If space allows, why not feature outdoor “movies in the park”, or “music in the park” which can also encourage outdoor picnics and other social activities. In an era when privacy equates to lack of social interaction with one’s neighbors and a hesitancy to connect with others, designing the park area, must take into account the design and placement of vertical landscaping, pavers for paths, the inclusion of water elements and lighting, to name but a few elements.

“The interactive park setting allows, if not encourages and facilitates, the ability of residents who share a common living environment to meet and greet, get to know their neighbors, have their children socialize with each other, foster new relationships, all of which can result in an enhanced living experience.

“As a real estate developer, I can see park architecture taking on a much more vital role as a lifestyle component in multi-family developments and being promoted as a special feature to help a project’s marketability. To simply suggest that your development “features” green space, is, in my view, simply not a strong enough selling point to draw more prospective residents into your sales center and to differentiate your community from the competition. Thoughts? Thank you.”

Giving Diligence its Due “Title Insurance – Don’t close without it!”


In the realm of real estate development, fundamental to the real estate Developer’s ability of converting   his/her vision of developing property for  profit  to the reality of realizing that “noble” goal is  his/her ability to accomplish myriad, complicated and interrelated tasks along the critical path of the project’s development  to completion. First among these has to do with   ownership of the property on which the r project will rise.  We are assuming here that the Developer (or “Owner”) is buying vacant land in order to build a “ground-up” improvement on the property he is acquiring.

The Developer must be assured that the  development plan is not only economically feasible and market acceptable, but that the project will be legally permissible (e.g., zoning and other governmental regulations).Prior to making significant commitments of  his/her resources and those of  his/her partners, investors and lenders, title to the land he acquires is, in the parlance of lawyers and title insurers,  must be “good and marketable” (hereinafter simply referred to as, “good title”). Moreover, he/she must be assured that it always remains that way. He/she must provide that same good title to  the project’s  construction lender who is, in effect, the project’s largest cash investor by far and who bears the greatest amount of  economic risk. The  financing associated with a to-be-built asset  (e.g. funding the construction of a building) as opposed to financing an already built asset where the risks, while still significant, are much less than in the construction loan setting.  So too will the Developer’s successors in interest and each of their own lenders, partners and investors demand no less quality of title for their own account.

In order to assure him/herself and his/her lenders that the property being purchased enjoys good title, the Developer, as the title insurance policy beneficiary, depends initially on the title insurance underwriter’s title commitment  to insure, followed by the title insurance policy. Subject to exceptions and exclusions to coverage, which  usually include  “standard” industry exceptions, the Developer must be assured, as  must  his/her lender, that any title matters  will not impair  the Developer’s ownership and development  of the property or the lender’s ability to lend the project vast sums of money for the purposes intended. These loans are secured by the land and the improvements to be developed on it. Interestingly, unlike casualty and liability insurance which insures against future events, a title insurance policy insures against what has happened in the past.

Typical exceptions (meaning items that the title insurer will not insure against) include such items as the current year’s real estate taxes or any taxes or assessments not shown as liens of record on the property, easements or claims of easements or rights-of-way not shown of record, riparian and littoral rights, (these include rights to water and are generally never insurable), as well as other matters of record or some which might not be of record. Although easements not of record are a standard exception, they are usually deleted as an exception and are therefore insured against. A critical part of the Developer’s initial due diligence in evaluating the property purchase is to review with competent legal counsel and other professionals such as engineers, surveyors and others, the matters which are not insurable. The Developer must be certain that none of these items will pose a problem from an ownership, development and financing perspective.  If there are title matters that are not so clear cut, negotiations by the Owner and  his/her counsel with the title insurer’s counsel  as may be supplemented with the purchase by the Owner of special policy endorsements come into play in order to provide the required coverage.

It is critical that the  title review be done even in advance of signing a contract to purchase the property, if that is possible, because the Developer is wise not to incur legal fees attendant to the contract of purchase negotiations when there may be an overriding matter of title that literally can “kill” the project” before it even gets started. For example, a recorded easement running through the middle of where the building is planned to be built would preclude a purchase of the property in the first instance, without an appropriate requirement remediating the problem.

Negotiations with the title  insurer are as important a part of the acquisition transaction as the purchase contract itself, if a title problem is imminent.  The Owner deals with the title insurance agency,  often a law firm which acts as an agent  of the title insurance underwriter.  Initially, the agent will provide a title insurance commitment to the Owner, which is a contract to provide the policy pursuant to agreed upon terms and conditions. As in any agency relationship, the agent  insures  nothing, but merely is an agent of the title insurance underwriter, that is,  the “title underwriter”, which actually assumes the title insurance risk to defend title for the Owner and the Owner’s lender by underwriting the title policies. The agency might be an agent for  several title insurance underwriters. It receives a commission calculated as a percentage of the premium cost paid by the insured as a one-time fee at the closing of the issuance of the policy, which generally coincides with the closing on the sale of the property and/or its funding by a third party lender. The Owner’s lender will also receive Mortgagee Policy to the extent of its interest as a mortgagee provided by the same agent and underwriter. The Owner also typically  pays   the Mortgagee Policy premium, the cost of which is mitigated favorably for the Owner because it is being  issued simultaneously with the Owner’s policy.

The Developer’s confidence in  his/her ownership and property development rights continues uninterrupted through the  completion of  the project. His/her moving ahead is borne out of  his/her knowledge that the title insurance  underwriter,  through its title  insurance policy, has among several of its contractual obligations, the obligation to defend the Owner’s title against claims that may be made against it, in strict compliance with the  terms  and conditions, exceptions and exclusions of the contract of insurance. Moreover, if such claims require money or  performance to correct or eliminate title problems, to satisfy or relieve claims,  it is the title insurance company’s responsibility, to comply with its obligations under the policy of title insurance up to the full extent of the policy’s value. It is under  contractual  obligation, that is, it’s “duty to defend for the Owner” on which the insured, together with all other provisions of the title insurance policy, relies. The comfort given by a policy of title insurance, is a testament to the great importance property Developers and their investors and lenders give to the title insurance process and the blanket of protection it affords.

Howard N. Shapiro on Jim Fried Radio Show Feb 13, 2014


Edit Feb 19, 2014: Added a clip of the segment where I was interviewed (first download link below). Full segment is also available (second download link).

I am very pleased to say that I  have been invited by Jim Fried, who is a well known and popular Miami real estate professional and radio business talk show host, to appear TOMORROW EVENING, THURSDAY, FEBRURY 13, 2014 on his weekly radio broadcast, “Fried on Business.” Jim’s show airs in the greater Miami area on AM Station 880 between 5:00 and 6:00pm.

I shall be commenting on the state of our local real estate market as I see it. In addition, I shall also be discussing my involvement as a Faculty Member on the University of Miami School of Law LLM Program in Real Property Development, which is the country’s pre-eminent graduate law degree program with a concentration in real estate and the law.

Joining me will be one of our top students, Mary Wolf, who hails from St. Louis and who is enrolled in our Program. Mary will describe her impressions of the Program and how it has contributed to her practical knowledge  of real estate and the law.

Mary and I hope that you will be tuned in to the show. I am not certain precisely when, during the 5 to 6 o’clock hour, our segment will air, but please listen for it as you will be able to call in to the live program if you choose to do so while we are on air.

For more information about Jim’s popular program, please go to www.jimfriedonbusines.com. For information about our UM Law School LLM in RPD, please visit us at: www.law.miami.edu/realproperty-development.

Thanks and we look forward to “seeing” you on the radio.

Howard Shapiro

Giving Diligence its Due Part VI: “The Concept”


In my previous blogs, I discussed the importance of due diligence when the developer is considering the acquisition of a real property asset for portfolio or for development purposes.

In my discussion I emphasized the importance of paying concentrated  attention to the issues which arise and what the dire consequences might be if that exercise is not undertaken properly, meaning, among other things,  the due diligence track must  be subsequently and constantly  amended to incorporate new issues and considerations that will arise from transaction to transaction. The person in charge must realize that the process is very fluid and apt to change direction at any time. Whatever new issue comes up on one deal should be incorporated in the revised checklist template going forward for all future deals.

The need for due  diligence is certainly not limited to real property decisions. If you really think about it,  due diligence is something most of us do in our daily lives.  For instance, when you decide to buy or lease  new car, buy the extended warranty or not, conduct all of that comparison shopping, checking out various automobile types, deciding whether to buy or lease, deciding whether to trade in your old car or sell it privately, etc., all that is due diligence. The same thing applies when you are seeking to engage an attorney, accountant, real estate broker, insurance agent or a physician for that matter. It also applies to how you decide which pet to buy and make a part of your daily life. You will, in some form or fashion, on many levels, conduct your own investigation  in order to reach what you believe to be the optimum decision.

The same concept applies when you are considering something as innocuous as the purchase of a new dishwasher, a TV set or stereo. In these more mundane examples, the risks associated with not doing your homework are really minor. The worst that can happen is that you will probably pay somewhat more than you have to or you might end up with a product warranty that may not be as comprehensive. ….all consequences with which you can easily live without much concern.

However, there are instances when the failure to do appropriate due diligence can have dire consequences—in the extreme, actually resulting even in loss of life. In that regard, let’s consider the Challenger and Columbia Shuttle disasters, and how the failure of  NASA to conduct appropriate due diligence resulted in the loss of 14 precious lives—14 national treasures and, less importantly, but still significant, a financial loss exceeding $3 Billion Dollars.

In 1986, in the wake of the Challenger tragedy,  President Ronald Regan convened a Presidential Commission—the Rogers Commission headed by William P. Rogers, the former Secretary of State—-to determine the cause of the disaster that took place 73 seconds after liftoff and which took with it, 7 remarkable lives. The commission was comprised of experts who were among the most qualified people in the world to investigate the disaster in order to determine what went wrong and to establish a methodology for avoiding such mishaps in the future. To a large extent, their mandate was to examine in microscopic detail the prelaunch due diligence process such as it was and to establish an effective and comprehensive due diligence track going forward.

Among the Commission members were veteran astronaut, Neil Armstrong, the first man to walk on the moon. Richard Feynman, winner of the 1965 Nobel Prize in Physics, Sally Ride, the  first American woman in space and Chuck Yeager, retired Air Force General, the first person to break the sound barrier in level flight. The remaining 10 world-class  members were equally qualified in their own right.

THE FINDINGS: The Commission found that the accident was caused by a failure in the O-rings seals. It was determined that the decision making process, in other words, the DUE DILIGENCE process that led to the launch of Challenger was seriously flawed! More specifically, the Commission stated that “failures in communication…resulted in a decision to launch based on incomplete and sometimes misleading information, a conflict between engineering data and management judgments, and a NASA management structure that permitted internal flight safety problems to bypass key Shuttle engineers. Incredibly, the conclusion reached was the lack of due diligence discipline to a  crucially painful reality that “the causes of the institutional failure responsible for Challenger have not been fixed, saying that the same flawed decision making process that had resulted in the Challenger debacle was responsible for Columbia’s total destruction seventeen years later!

Columbia’s accident was attributed to faulty exterior tiles on the exterior skin of the Shuttle. In both instances, had the NASA personnel conducted their due diligence in a thorough manner, they would have discovered that these problems were endemic to and had previously existed repeatedly in the past on these Shuttles. How is it even thinkable that these ill-fated Shuttle missions were launched and lives put at risk despite the fact that there had existed a history of O-ring and tile failures on these two gargantuan vehicles. Not only was due diligence protocol ignored, but in the words of the Commission, “…It appears that for whatever purpose, be it for internal or external consumption, the management of NASA exaggerates the reliability of its product to the point of fantasy”. In other words, the pressure to launch and the values attributed to those ill-fated “Go” decisions lacked the due diligence in depth investigation necessary upon which those disastrous decisions should have been made.

Of course, one cannot compare the loss occasioned by due diligence failure in the context of  a real estate transaction to the unspeakable loss of 2 shuttles and, more importantly and tragically, the loss of 14 vibrant lives.
And, there are no real estate calamities that could ever approach the financial implosion of losing 2 assets whose costs to build are one billion dollars each and which in addition, cost $450,000,000 each to launch.

The point I am making with respect to the Shuttle cases is to take the importance of due diligence to an admittedly absurd level. And, surely, the death of 14 precious human beings will always be exponentially a far, far greater loss than any real estate deal or any other deal, for that matter, could ever be.

So how could these tragedies, perpetrated by some of our nation’s finest and brightest minds—NASA’s engineers and administrators—have ever happened? Twice?!! In the wake of such incredible loss suffered initially by the families of our 7 dead heroes and, indeed, by the nation itself the first time, how is it even conceivable that we would have continued with business as usual with the inevitable result that unimaginably  abhorrent history would repeat itself?

The answer lies in the mindset of human beings who failed to conduct the depth and breadth of due diligence necessary to provide the “go-no go” deciders with information required to make an intelligent, properly considered decision.

It is axiomatic that due diligence is far from a continuous and absolute track toward  always reaching the ultimate truth. As we travel through the due diligence reasoned process, we move forward and backward and sometimes sideways in trying to assess all of the variables that come to light. Inherent in that process is that our minds be open to always being prepared to revise our previous assumptions and even our goals.

If done intelligently, thoroughly and correctly, the process of due diligence work will have us testing and revising our perceptions of reality, as well as our questioning our assumptions and conclusions as more and more facts rise to the surface of our decision making table. And that is truly the essence of the due diligence process. We cannot simply accept blindly what we want the results to show to a point where we ignore underlying realities, which are always discoverable if the effort to discover them goes objectively and deep enough to produce useable and sustainable results.

In the final analysis, due diligence in the real estate deal context can be adequately conducted using common sense. In a world that is increasingly dependent if  not  controlled by high-tech digital and mathematical analysis, algorithms, predictive analytics and the like, plain old common sense is what  should rule the day in the world of real estate acquisition and development decision making. Certainly, the more in-depth scientific, computer driven approach has its place in engineering and the sciences, but real estate development need not be so complicated or obtuse. In this field, the most useful and powerful computer is and will always be the human brain.

University of Miami Letter to Incoming Class


Each year, for the past 16 years that I have been an Adjunct Faculty Member in the University of Miami School of Law LLM Program in Real Property Development, I have participated in the incoming class’s Orientation Program. The orientation process includes meeting with the students in the classroom setting to acquaint them with what they can expect during their course of study in our Program. Further discussions are held with the students and often times with members of their family when we get together in a more informal and relaxed “meet and greet”  reception hosted by our faculty.

The orientation packet they receive contains a lot of information, all of which is designed to provide the students with as much help and direction as possible. To that end, I always include my letter to the incoming class in the documentation they receive and I address the class directly to explain my role and why I perceive the value of the Program to be in its great faculty and course content.

There is no question that the UM LLM Program in Real Property Development is the premiere program of its kind at a Master of Law level in the country. My orientation letter to the incoming class seeks o complement what I and other professors describe to them during the orientation sessions.

To the Class of 2013:

Welcome to the University of Miami. The Real Property Development (“RPD”) Program in which you have you have enrolled is unlike any other at any Law School in the United States. Unique to your course of study is the Developer in Residence Program that allows developers who have made a significant contribution to the built environment to spend the school year with you. I am honored to have served  the University’s School of Law as its Developer in Residence since 1997.

Under the RPD I will, from time to time, participate as a special lecturer in several of your classes. I will arrange special programs and site visits and invite developers and professionals who serve the development industry to address you, all of which is designed to enhance your educational experience. I will also sit in certain of your classes on a full time basis where I will act as your “client”. In this way, I hope to lend my real world experience as a complement to the theoretical aspects of real estate law classes which are a part of your curriculum.

I also sit as a member of the Strategic Planning Committee where, with a select group of your faculty, I work to improve the Program on an ongoing basis. Please regard me as your confidante, advisor and as your liaison with the administration and faculty of the University. I am available to you at any time and always on a strictly confidential basis.

Having been a developer for over 36 years, I can assure you that the RPD is a dynamic, real world, practical, education taught by an adjunct faculty and visiting professors whose credentials and teaching skills are second to none, They are ably led by Associate Dean Douglas Bischoff who, as Director of the Program, and as a teaching Faculty Member has brought this Program to national prominence. Ms. Connie Bowers is the Program’s Administrative Coordinator.  You will find Connie to be an invaluable resource during your course of study.

I look forward to meeting each of you and to being of service to you during the school year. For your reference, my biographical information is attached. Over the next 9 months you will work hard, have fun, make new friends, develop business contacts and receive an incredible education that will forever and immeasurable enrich your careers. In that endeavor, you have my best wishes for a successful and rewarding school year.