Smith, Gambrell & Russell, LLP

Strategic Work-Out Attorney Team (SWATT)

In response to the unusual and uncertain times we are encountering in the real estate field, the Real Estate practice group of Smith, Gambrell & Russell, LLP has created an integrated team of attorneys to assist developers, lenders, investors and other professionals to quickly and inexpensively assess the real-estate related risks associated with distressed properties. Whether the property or project in question consists of raw land, partially or fully developed sites, completed or partially completed buildings or occupied and operating projects our attorneys stand ready to assist in helping to evaluate the risks and issues associated with each project.

Most of the issues involved in assessing distressed real estate are no different than those found in traditional due diligence; however, some issues are more complex because of the distressed nature of the project, as well as the uncertainties in the financial markets. Depending on the problems, we can selectively choose which professionals are appropriate to the particular task. We have assembled a “menu” of service providers that can quickly assist in evaluating the current problems as well as propose solutions. Our services can be focused to maximize efficiency in our analysis of the problems. Further, we are able to offer many of our services on a flat-fee or fixed fee basis in order to provide some cost certainty in dealing with problem properties or projects.

Various legal disciplines will contribute based on our client’s need and our preliminary estimates of areas of concern. Some of the possible real estate related issues and areas of concern include the following:

Land Use/Zoning

Audit of the property: What is the permit status: validity, duration, and whether transferable; identify active holders and status of Notices of Intent to Discharge Pollutants; identify potential problems on site revealed by visual inspection; identify all governmental entities with jurisdiction over the site.

Audit of the entitlements: What is the zoning of property: including conditions of approval, whether local jurisdiction has reversionary (lapsed) zoning, whether the zoning ordinance has changed after approval to render the development nonconforming (and, if so, whether project even may continue); likelihood of need for rezoning or other approvals (Special Use Permits, Variances, etc.) given current status of ordinance and on-the-ground conditions (as well as description of that process and its timing); whether overlay zones also apply (Historic, Special Purpose, etc.); conditions of DRI approval, if applicable; whether impact fees have or will be assessed; whether can obtain meaningful zoning certification from local jurisdiction; and whether any unrecorded agreements exist which might limit development rights.

Development Issues: What problems exist regarding current or likely chance of moratoria, sewer availability; road improvements/curb cut approvals (especially if on state highway); utility availability; annexation possibilities/probabilities; likely incorporation of municipality; and liquor licensing.

Bankruptcy

Pending Proceedings: Is there a pending or threatened bankruptcy proceeding affecting the property, the borrower/owner or the lender? How might the automatic stay adversely affect a lender’s or owner’s ability to deal with the property? What rights might be impaired by the bankruptcy proceeding and what alternatives might be available to exit the proceeding?

Existing Tenants/Leases: What might be the issues with a bankruptcy on existing leases?

General Real Estate

Title to Property: What is the status of legal title to the Property? We can provide a tax and title search of the property or update your existing title insurance policy which will disclose the existence of liens, lis pendens, unpaid taxes and other problems with title. We can analyze the results of this search and the effects of any title problems.

Loan Document Review: Are there loan issues? We can review the applicable loan documents and determine whether there are any problems with the real estate collateral being properly secured. If there is an inoperative or developer-controlled homeowners association or condominium association with covenants affecting the property, we can determine the rights to control that association and to enforce the covenants and collect assessments going forward. Lender

Security: Are these priority issues? What rights might other lenders (or owners) have that might interfere with the exercise of a lender’s rights regarding collateral?

Remedies: What risks are associated with exercising the foreclosure remedies and are there other remedies to be pursued short of foreclosure? Are there issues that would preclude recovery against guarantors of the loans? If there is a bankruptcy proceeding, what is the best approach and potential timing of relief?

Construction

Completion of Work: In the event that the distressed property is under construction, does the lender, successor entity, contractor, or current owner have a right to terminate, suspend, or continue the construction work? Is the lender or successor entity responsible for paying for work that precedes the workout? Are the contractor and its subcontractors obligated to continue performance? Does the lender or successor entity have a right to use the drawings and specifications? Is a surety obligated to complete the Project? Is a surety obligated to pay for work that either precedes or follows the workout? Who is responsible for correcting defective and non-conforming work that precedes or results from the workout?

Mechanic’s Liens: Have claims of lien been recorded against the distressed property? What is the exposure for additional claim of lien if the lender or successor entity takes over the property?

Claims/Delays: Are there pending claims for delays or cost overruns? Will claims for delay and cost overruns result from the workout? Are existing claims assigned with the design and construction contracts? Are there any claims for defective design or construction? What if latent defects manifest after the workout?

Environmental Matters

What are the environmental operational and compliance considerations including, among others, erosion, sedimentation and pollution control issues; NPDES and other storm water discharge permitting requirements; stream buffer matters; wetlands permitting, banking, and mitigation; waste handling and disposal obligations; and overall waste, water and air quality compliance for operating facilities. Our attorneys also evaluate whether existing environmental permits, licenses, and other entitlements are deemed transferred to holders and potential purchasers of distressed assets or whether notice or a new application must be submitted to the issuing authority.

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