And now for the most fun and wacky part of the transaction process……CLOSING. As nerve wracking as the closing can be with the myriad details to deliver by a looming deadline, it is truly the most fun and satisfying part because it is the culmination of the acquisition and due diligence process, Phase I and the start of Phase II-the ongoing operation of the property.
As soon as the Inspection Period is over, then the closing process begins…..well, sort of, but not always. The “not always” exception is that sometimes the end of the Inspection Period will be extended but the Closing date will not, so in effect the Closing process begins even before the Inspection Period ends. In other words, there could be some element of the Inspection Period, for instance the negotiation of a Triple Net lease that is not completely finished by the end of the original Inspection Period date that requires that the Inspection Period be extended until this negotiation is complete.
In order to close, the title commitment needs to be finalized, along with the third party reports, including the Property Condition Report, Phase I Environmental Assessment, and the Appraisal. The Appraisal is ordered by the lender; hopefully there is no surprise regarding the value and the property appraises for at least the purchase price.
Don’t forget that the capital stack, which includes both debt and equity, and Sources and Uses have to be finalized as well. The debt or loan amount (the fixed part of the capital stack) is finalized well before the end of the Inspection Period. The equity contribution from the Limited Partners and the General Partners (the sponsors of the offering) along with the debt from the lender comprise the Sources. Acquisition fees, placement fees (debt and equity), third party report expenses, attorney fees, closing costs, etc. comprise the Uses. The equity is a moving target until days before closing, which can be a roller coaster ride as well, because investors or Limited Partners are finalizing their commitments and tendering subscription agreements and equity checks or wires. Even though the amount of the loan is fixed, the loan documents themselves are not, which leads to another negotiation with the Lender’s attorney.