Co-ops are bending rules, lawyers are personally messengering documents.
Closing in the time of coronavirus is onerous but not impossible.
Developers are agreeing to a variety of contingencies, attorneys are personally ferrying dossiers between parties, and staid institutions including banks and co-operatives are being surprisingly flexible.
“I’ve become a $650 [per hour] messenger, but, you know, whatever it takes to get it done we’re trying to do,” said Jeffrey Schwartz, managing partner and head of the real estate practice at Schwartz Sladkus Reich Greenberg Atlas. “We’re pulling out all the stops.”
Schwartz said he’s spent hours driving around to drop off and pick up original signed documents.
Though listing inventory and contract signings have dropped off dramatically since the pandemic brought in-person work to halt, closings are still happening — mostly on properties that went into contract weeks if not months ago.
Replacing the customary in-person closings is a challenge, but the desire to close a deal is proving strong enough to overcome barriers related to the pandemic. What’s more, some would like to see virtual closings become the new norm — though some attorneys seem to shudder at the thought.
Sellers’ urgency to close underscores the strong headwinds they were already facing in New York and concern over how long the pandemic could last.
“The fear for the seller is if they lose a deal now, and the buyer walks away, the odds of a new buyer [coming in] are essentially impossible,” said Pierre Debbas, partner at Romer Debbas. He was working on his firm’s first set of entirely remote deals late last week.
Starr Associates, which specializes in representing new development projects, has closed 15 deals remotely over the past two weeks, according to managing partner Samantha Sheeber.
That included the final sponsor unit — for a cool $19.5 million — at World Wide Group and Rose Associates’ 252 East 57th Street. Starr represented the developers, while Douglas Elliman’s Tal Alexander brokered the deal.
“It was a completely virtual closing,” said Alexander. “I’ve never been part of something like that.”
How it’s done
The way deals are getting done despite the state’s stay-home order isn’t new: It’s closing in escrow.
Shaun Pappas, a partner at Starr, said the firm has established best practices of how to do that.
About a week before the scheduled closing date, Starr will initiate an email thread with all parties involved. Virtual copies of documents, messages and questions are all sent and answered on that thread.
Meanwhile, the physical documents with the seller and buyer’s ink signatures will travel back and forth via FedEx, or courtesy of the parties’ various lawyers when messenger services aren’t available or fast enough.
After every signature notarized with the buyer and sellers’ attorneys on a video call, a scan is made and sent to the thread. Once physical copies are sent and received, confirmation messages are emailed.
For the final walkthrough, in many cases a worker on site will use a video call to guide a buyer through their unit. Construction sites in New York were open until last week, so at new developments someone was on site to film. In many cases, Pappas said, the buyer and sponsor would also sign a “post-closing survival agreement,” which allows buyers to do a physical walkthrough later.
Developer Michael Stern said he has been using a similar approach at The Fitzroy to move forward with closings.
On the actual closing day, Pappas said “the faster ones are a few hours. The longer ones are five to six hours.” He recalled one $6 million deal that ran until nearly midnight and resumed at 8:30 a.m.
“Our office hours are now 24/7,” he said. “You’re going to have to be available throughout the day.”
Dorian Lam, a principal at title company Cornerstone Land Abstract, said closing in escrow has become the way 95 percent of his firm’s residential deals are closing now. That said, he noted that deal volume has dropped about 50 percent over the past two weeks.
The remaining 5 percent of Cornerstone’s residential deals are continuing to close in-person, which is legal because financial services were deemed essential under Gov. Andrew Cuomo’s stay-at-home order.
In those cases, Lam said, closings occur with each party in a different room. Each party uses their own pens, and wears gloves and masks. He attributed those cases largely to attorneys who are uncomfortable with technology.
“There are still people with AOL accounts and insist on us faxing,” he said, but he argued that closing in escrow should become the industry norm for residential deals. “We’ve been doing it this way for years.”
Stern agreed. “A lot of the residential buyers like a physical closing, or they’re just used to it, but it’s not actually necessary,” the developer said.
Banking on the future
Debbas said some banks and mortgage brokers have also been slow to adjust.
“Most of the banks are box checkers and if it doesn’t fit the box, they can’t do it,” he said. However, he is optimistic that most will figure it out shortly because “it doesn’t seem like this situation is going away anytime soon.”
Pappas admitted that the process is “trickier” when lenders are involved, but noted that about a third of Starr’s remote closings had financing.
When Debbas is negotiating for buyers who need to borrow, he reverts to strategies he relied on following the 2008 crash, notably what he calls a “funding contingency.”
“[The deal]’s contingent upon the bank having the money on the day of the closing to show up with the funds,” he explained. “We’re trying to protect buyers from an absolute worst-case scenario of a total economic collapse.”
He said one developer agreed to a funding contingency last week on a $3 million unit in Brooklyn Heights.
Some lenders have adapted to virtual closings, though. Samantha Gordon of Wexler & Kaufman represented Citibank on two remote closings at Magnum’s 196 Orchard Street.
Now, Gordon is working on five other remote closings for lenders, sellers and buyers — and reports seeing “a lot of flexibility” as they prepare to close. She recounted one deal where the buyer and seller agreed to close but keep payment in escrow until the final walkthrough could be completed in-person.
Schwartz reported similar accommodation from an unexpected source: co-op boards.
Co-ops are known for particularities. Alan Rosenbaum, the head of mortgage lender Guardhill Financial, and Citizen Bank’s Ace Watanasuparp, both recalled in a TRD Talks webinar experiencing challenges when working with co-op boards on remote deals during the pandemic.
Schwartz said his firm has sometimes gotten around this by taking on the tasks usually performed by managing agents. As of last week he had closed two co-op deals in escrow.
In one, involving financing, his firm took over the managing agent’s duties. In the second, the managing agent decided to scan board minutes and upload them to a Dropbox folder for a 12-hour window to allow Schwartz’s team to do due diligence. Usually, co-ops require that minutes be read while physically at the building. The Dropbox method is the only part of the remote closing process that Schwartz said he hopes will stick around, and some lawyers seem to agree.
Even Lam, from title insurer Cornerstone, admitted that the remote closings can have drawbacks. For instance, if a last-minute adjustment is made to any terms, initializing won’t suffice; all documents must be reissued and signed.
“It’s just a much more tedious process,” said Schwartz. “Unless we can perfect it a little bit better, I don’t see it continuing.”
Write to Erin Hudson at firstname.lastname@example.org
Our team has had the pleasure of working with Starr Associates on our project at 150 Rivington Street. The entire Starr team was a tremendous asset to the success of our project. Through very challenging times, Starr Associates came through time and time again. It is an honor to work with everyone at Starr!
I have known Allan Starr for many years and worked with him on many projects. He has always exceeded my expectations. He not only knows the ins and outs of the law, but knows how to make the whole process easy and quick. I’ve found him to possess an incredibly astute legal mind, combined with a common sense approach that always accomplishes my goals. He’s not only a gentleman and a friend, but a brilliant lawyer.
It has been an absolute pleasure working with Allan Starr and Samantha Sheeber over the past twelve years. They are not only the utmost professionals, but also wonderful people who I have grown to love like family. I trust them with all of my new development projects and private clients, and we support each other in our business and personal lives. Starr Associates LLP has always been there for me and my clients and I would recommend them as highly as I recommend anyone.
Allan and I have worked together for decades; along the way, I have worked with Samantha Sheeber, Andrea Roschelle, John Rodriguez and Erica Starr and have always been pleased with their quick and accurate responses. They have worked with us on closings (with great and efficient results), restatements of stale plans, amendments and other assorted AG requirements, always on a timely and cost-effective basis.
“Working with Starr has been great on three condo projects in Manhattan to date. The accessibility and direct attention of the partners is unsurpassed. Allan and Sam have the interests of the owner at heart and make every effort to protect our interests in a responsible and defensible manner. Their practical approach and deep knowledge of the offering plan process and requirements of the AG office combine to make a highly effective and efficient package. At the associate level they have good support as well. The closing office has to be the best in NY – never a failed closing in 15 years. We are repeat customers and will be going forward.”
“Samantha Sheeber is a partner in making transactions successful. She’s resourceful, respected, smart, funny as hell, and is swift to constantly embarrass us (and clients) because she sees the end while we all muddle in the middle. She saves time. She is selfless and fast and conscientious. She’s loyal to the notion of selflessly getting stuff done. She cultivates great talent. And she makes the process fun, even when she is mad at us for asking the same impossible question 11 times hoping for a new result (a solution for which — by the way — she often discovers).”
“As an active developer in New York City, Magnum Real Estate Group is proud to have partnered with Starr Associates, LLP as our legal counsel in 5 significant projects valued at approximately $800 million. Over the last 5 years, Starr has provided us with exceptional advice on condominium Offering Plans and related transactions. Partner Samantha Sheeber, Esq. and her team have professionally guided us, and provided creative and effective solutions when needed.”
“I have had the fortunate opportunity, over the past 16 years, to work with Allan Starr and Samantha Sheeber who I consider to be experts in the field of real estate law. They, together with their team, have a deep understanding of Attorney General Offering Plan registrations and continually seek to identify creative solutions to complicated issues. Their level of integrity and commitment are unwavering no matter how large or small a project. I completely endorse Starr Associates LLP and look forward to our mutual continued success.”
“Starr Associates’ specialty in the creation and representation of condominiums is unmatched. Their knowledge, experience and professionalism in the office condominium sector is best-in-class. Starr Associates’ hard work and expertise has been critical to the success of our firm’s office condominium projects.”
“Starr Associates have been our condominium attorneys for many years. Their counsel goes well beyond just drafting the condominium documents, which of course they do extremely well. They also represent us and our brand with condominium unit purchasers, and with our lenders and partners on condominium related matters. We have always found Starr’s attorneys to be professional, responsive and cost-conscious.”