How’s the Weather Out There?

Once, [real estate developer] William Zeckendorf sent me to California to buy 2,000 acres of oceanfront property for a residential development. The owner kept coming up with one excuse after another why he’d have to wait a day or two to show it to me. I complained to a friend, and my friend told me, “He’s waiting for a sunny day. That property is usually full of fog, and he doesn’t want you to know that!”

The Case of Misplaced Ownership

Many years ago, when I was working for Zeckendorf, I completed a title search for a building owned by one of his subsidiaries that he was trying to sell. But Zeckendorf kept telling me to hold off, to not close the deal. Finally I said, “Mr. Zeckendorf, the buyers are getting impatient. Why can’t we close?”

Zeckendorf looked around and then whispered, “Because we don’t own the building. I had to put up our stock in that subsidiary as collateral on a loan for another deal we’re involved in … .”

“So we don’t own that subsidiary anymore?”

“Right,” said Zeckendorf, “and of course that wouldn’t have come up while you were doing the title search. But don’t worry. I’m trying to buy back that stock, and then we can sell the building. Problem is, the buy-back is contingent on another deal that has to go through … .” —From Charles J. Urstadt, CEO of Urstadt Biddle Properties, Greenwich, Conn.

Over the Income Threshold

I dealt with a case in which the client was purchasing an apartment building that was receiving a government subsidy on the property’s lower-income housing component. During the due diligence, we discovered that some of the tenants in those units were now over the permissible income threshold. I told the client, “At some point, the housing authority will audit the property and identify these tenants as no longer qualifying. These potential violations could put the subsidy at risk in the future and potentially even require refunding of subsidies already paid. You need to resolve this situation before you buy.” —From Jahn Brodwin, senior managing director of FTI Consulting, New York City

Just an Accounting Mishap

We were considering buying a building whose owner had a portfolio of several properties. The broker reported that the salaries and management fees related to the property we were looking at totaled $1.04 million. I said to myself, “That’s great if it’s true, but it sounds pretty low.” So we checked to make sure they were capturing all the expenses, and when we added up the figures on our own, we found an extra $400,000 worth of expenses. The discrepancy happened because the owners had applied their employees’ full salaries to individual buildings, when in fact an employee worked at several buildings and the expenses should have been allocated accordingly. When the money was correctly allocated, it changed the building’s cap rate dramatically—and not in our favor. —From Arnon Wiener, director of operations at Madison Commercial Real Estate Services, Lakewood, N.J.