Closing the Deal
Hey Bright Builders,
This is a huge week in our theoretical build :-)
You’re about to officially own the land, finalize your construction loan, and gather all your equity. It's time to close the deal and kick off your project!
Closing is a super busy period filled with lots of running around and paperwork. You’ll be signing tons of documents for your construction loan and the land. It’s a monumental task that requires a lot of coordination.
The key player in this process?
Your attorney.
They’re your go-to person for keeping everything on track. They’ll handle checklists, talk to the lender’s counsel, and coordinate with the seller’s counsel. Their role is crucial.
At this stage, all your pre-development work becomes real. You now have a tangible project about to start construction. Your developer fee becomes a real thing and you’ll pay yourself back for all the money spent on pre-development. This is a huge milestone—one that’s both exciting and worth celebrating.
But let’s be honest, it’s also one of the most stressful parts of the process. When I have a closing coming up, I usually let my wife know that I’ll be out of commission for the week. From the second I wake up to the second I go to bed, I’m working non-stop. There’s a lot to juggle: calling in equity, finalizing contracts, and coordinating with everyone involved.
The Details
Coordinate with Your Attorney: They’re the linchpin in this operation. Make sure they’re on top of everything.
Third-Party Reports Update: If it's been longer than six months since your third-party reports (like your Phase I, survey, or Phase II), you'll need to update them. Typically, this involves the consultant make a quick site visit to confirm nothing has changed and updating the reports. This takes a few weeks and costs a few thousand dollars but is needed for closing.
Finalizing Contracts: Make sure your architect and general contractor contracts are finalized. Go through the fine print and get those signatures.
Calling in Equity: This is a crucial step and can be quite an adventure. At this point, you know that when you raise money, investors typically commit to providing funds but don't send checks immediately. Now, as you approach closing, it's time to "call in" that equity. Here's how you do it:
Set a Date: Typically, set the date for calling in equity three or four days before closing. This accounts for any delays and ensures the funds are available when needed.
Follow Up: Even though this is a major step for you, it might not be as urgent for your investors. Some might be investing in multiple ventures and need reminders. Follow up with your investors to ensure they transfer the funds on time.
Collecting Checks: Be prepared for some legwork. While many investors will wire the money, others might prefer to write checks. You may need to drive to their homes and collect the checks. Seriously. Yes, it's old-school, but it ensures you get the funds you need.
Bank Coordination: Inform your banker ahead of time about the frequent deposit coming. If your account has been dormant, a sudden influx of millions can raise flags. Giving your bank a heads-up helps avoid any hiccups.
Site Preparation: If there's an existing building to demolish, ensure utilities are disconnected. Coordinate this with your general contractor. Conduct an existing condition survey, especially in urban infill sites, to document the state of surrounding buildings. This survey involves hiring environmental consultants to document the state of neighboring properties, including foundations, exteriors, and sometimes interiors (if permitted). This acts as a safeguard: if a neighbor claims your work caused damage—like cracking their foundation—you'll have evidence of the property’s condition before you start. It’s a preventive measure that provides peace of mind for both you and your neighbors.
If there are any environmental issues on the site, ensure pre-construction abatement is ready to go. Typically, this happens post-closing, but it’s crucial to have everything lined up to avoid delays once you’ve officially closed.
Coordinate with your general contractor to start work immediately. You should be keeping them informed and in the loop on closing date and timeline. Ideally, there is movement on the site the day after you close. You don’t want to go through all that hard work and then sit there and watch nothing happen at your site after you own it. You don’t want ANY delays after closing. Ask me why I know that :)
After Closing
Once you’ve signed the papers and closed the deal, you officially own the project and are ready to build.
And then…
…take a moment to celebrate.
Pop a bottle of champagne.
Head to the sauna.
Shoot…
…TAKE A NAP!
But remember, the next day, it’s back to business. The real work begins now as you start building your project and ensuring everything goes smoothly.
Peace,
PS,
I was recently a guest on the Stronger Together podcast, where I dug into development challenges and how to create more housing. Check it out (fast forward about 30 seconds in)