Wednesday Q & A – Don Dagenais
Mr. Dagenais specializes in commercial real estate purchase, sale, mortgage, lease, development, management and land use projects for commercial developers, builders, investors, condominium developers, banks, mortgage lenders and property managers. His work includes handling all legal aspects of projects including apartment complexes, shopping centers, office buildings, condominiums, warehouse and industrial projects, retail stores, hospitals and nursing homes. He also works in the areas of construction law, zoning, foreclosures, and loan workouts; Americans with Disabilities Act requirements pertaining to commercial space; and all other related issues.
Mr. Dagenais is a frequent guest speaker before groups interested in real estate development and management, such as the Building Owners and Managers Association (BOMA), Kansas Land Title Association and others. He is also a lecturer in seminars for attorneys on advanced real estate law for professional organizations such as The Missouri Bar, Kansas City Metropolitan Bar Association, National Business Institute, Lorman Educational Series, and civic boards and organizations.
What legal issues are at the forefront of today’s real estate market?
As everyone knows the commercial real estate market is tough right now; the key issue is really whether commercial lenders are going to be getting back into the game. A few are dipping their toes in here and there, but many are still waiting it out. I think the big issues are when lenders are going to get back into the market, and when they do, what kind of loan underwriting requirements they will have. If loan underwriting requirements are too tough on borrowers, e.g. require extremely low loan to value ratios, require lots of personal guaranties, etc., then the market will still be pretty tight. Loan funds pretty well drive commercial real estate, so this is today’s key issue from my perspective.
You were active in the early 1990’s liquidating real estate portfolios. Do you anticipate that a mechanism will be created in the coming years similar to the Resolution Trust Corporation to help liquidate real estate portfolios?
I don’t think so. The RTC became necessary because lots of savings and loans simply went out of business and the government ended up taking over their loan portfolios and had to dispose of them quickly. Along with my colleagues at Lathrop & Gage, I did a lot of work in helping the RTC dispose of these portfolios through a series of high-profile real estate and real estate loan auctions back in the 1990’s. In the present climate, not too many of the lenders have really gone under, and those that have, are generally being purchased by existing companies, so the portfolios are ending up with the private purchasers of the assets, not with the government itself.
I do believe that the mechanism used by the RTC in disposing of real estate assets, i.e. high profile real estate auctions, is still a very valid way to quickly liquidate major portfolios. It must be used correctly, with plenty of disclosures and transparency to the buyers, and it must utilize a very fair procedure to make sure that all potential bidders have an equal opportunity to value the portfolios and to make their bids. I think that the auction procedure, if correctly done, could be useful to current lenders, and to those who may purchase their assets, as a way of liquidation. But I believe it will be done on a private basis, and not by a government agency.
From a legal standpoint, what common mistakes do you see owners, brokers, and developers make on a typical transaction (other than not hiring you to do their legal work)?
I’m not sure I would call them “mistakes,” but certainly all parties need to think through all aspects of the transaction to make sure that they anticipate future developments and needs. For example, a buyer who purchases real estate who fails to anticipate the needs of a future lender, such as needs for due diligence investigations (title, survey, environmental, engineering, etc.), may find itself with a piece of unfinanceable real estate due to a failure to anticipate a lender’s need for this information and a failure to understand the review standards that the lender will employ. As another example, a tenant who leases property and who fails to anticipate the possible sale of the company, or its possible need to expand or contract the leased space, may find itself with a lease that reduces the company’s value rather than enhances it. Another example would be a developer which fails to appreciate issues that may arise with neighbors or adjacent property owners; the developer may find itself unable to develop the property in the way it had envisioned. I think that good professional advice can help all parties to a transaction think through these kinds of implications and avoid unpleasant surprises later on in the process.
How are you and other real estate attorneys in your office staying busy despite a decrease in transactions?
We have actually been fortunate in being busy on a number of fronts. There are always the loan workouts and loan extensions, and the occasional foreclosure, that require our aid. But we are still doing new deals, although they often involve more inventive real estate financing techniques, such as more assistance from governmental sources, than was the case in the past. The availability of tax credits for certain kinds of deals is still important, as there are still companies out there making money which are ideal potential purchasers of tax credits. There is still commercial lease work to be done, as companies are assessing their future needs in light of both the current recession and the anticipated uptick in real estate activity over the next couple of years.
Are there any special volunteer organizations that keep you busy over the holiday season?
I am a lover of the theater and classical music and opera, and I have been very involved in theater, music and opera organizations. These groups face the same kinds of challenges that for-profit businesses face, i.e. how to attract customers (audiences), how to control costs, how to plan for the future and how to anticipate future needs and future growth. These kinds of issues present challenges for us all, and I enjoy working on them so that we can preserve and hopefully enhance the artistic experiences that enrich the community for all of us.