Legal expense vary by building size
Does anyone understand why legal expenses may be higher for larger buildings? Would really appreciate any explanations!
Does anyone understand why legal expenses may be higher for larger buildings? Would really appreciate any explanations!
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From an operating expense perspective:
From a financing perspective:
To build on this, from a development perspective there's generally more barriers to build a large building that legal needs to help guide you through.
Because larger buildings cost more money, which means lawyers know there is more budget to bill against.
Honestly, there are a lot of other structural reasons, but in my experience that's what it comes down to.
That legal line item is driven primarily by billable hours. As mentioned, complexity adds to the billable hours (parking rights, amendment reviews, fee simple vs. leasehold interest, ROFO/ROFRs, etc.). Other major reason is volume, more tenants, more work, more billable hours. Specifically, an acquisition will require seller estoppels (usually at some threshold and I've typically seen major tenants and ~75% of total RSF and estoppels typically require extensive back/forth and review -- can explain more as a follow up). Now imagine a building with 8 tenants in a midrise, suburban office vs. 120 tenants in CBD (that's a hell of a lot of time).
I closed on my first syndication as a sponsor a few months ago. 5 Craftsman fixer cottages near Balboa park in San Diego. The operating agreement was $2700. But mid escrow two units caught on fire. Sellers lawyer and my lawyer wrote a few letters and talked. When we closed escrow the final bill was about $6000.
Higher legal fees comes with higher deal size. All else being equal a larger building will be a larger deal than a smaller one. ezpz
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