In the world of commercial title and escrow, we rarely want for excitement. Each deal is its own adventure that you navigate with the transactors, brokers, lawyers, and lenders. Prior to March 2020, commercial escrows were like a wild road trip to Vegas with college buddies. Since COVID, they are more like intergalactic starship escapades with the cast of Guardians of the Galaxy!
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As an attorney, underwriter and business developer for a commercial title and escrow company, I’ve had a seat on the flight deck of the starship (and to be clear, I am not flying the ship!) From this vantage point, I have seen a lot, learned a ton, and have enough “war stories” about commercial title and escrow to last into retirement. I am going to share a few here.
The Good
In 2022, we were approached to hold $7 million in a construction security escrow. The escrow agent that closed land purchase refused to amend their standard escrow agreement to alter the indemnitors. We accepted the amendments, opened a file, and deposited the funds. Two months later, the owner asked if we would close its construction financing transaction. Of course, right? There were multiple borrowers/guarantors; construction had already begun, so priority was broken; and they wanted to close in nine days. Yikes! But, it was a $460 million deal. The following week, we had full underwriting approval, and closed one of the largest commercial transactions in Arizona that year.
The Bad
Everyone loves a good deal—the parties cooperate and communicate well, documents and funds are ready before the day of closing, and the actual closing is outrageously uneventful. That, unfortunately, is not always the case. We opened escrow for a $40 million multifamily deal in northern Arizona. The buyer deposited $400,000 as earnest money, which became nonrefundable. In the lead-up to the closing date, the seller submitted all of its closing documents. The closing date came and went, but there was no money or communication from the buyer. We convened our Earnest Money Dispute Committee, and reviewed the contract. Without exception, the committee agreed that there was no reasonable way that the money was refundable to the buyer, so we released the money to the seller. To be sure, this is not fun, and is fraught with risk. However, we also know the disruption that interpleader actions can have, and try to avoid them, if justified.
The Ugly
In November 2020, Arizona Proposition 207 passed and recreational (adult use) marijuana became legal. As the leading title and escrow agency in the Arizona cannabis space, we saw an absolute explosion of real estate activity for licensed cannabis companies. One deal was the first of its kind for us: the ground-up construction of a state-of-the-art cannabis campus, which was to include cultivation, processing, and retail. Given the current legal landscape, closing and insuring cannabis-related real estate transactions is difficult. This deal upped the ante on the difficulty. It was #1, a cannabis-related deal with #2, broken priority from the horizontal work that had been completed and #3, a loan from a hard money lender. Each of these three aspects requires specific underwriting approvals, which we secured. It was an ugly deal, but the closing was pretty.
The Just Plain Crazy
The single-family build-for-rent market has taken off over the past several years. We handled such a deal in San Tan Valley which got stalled by a small detail in the title documents—the CC&Rs expressly prohibited the product that the developer intended to build! Refusing to be defeated, representatives of the buyer and seller worked with the board of the owner’s association and our title team to get (correct and properly formatted) signatures from the requisite number of owners to amend the CC&Rs to allow for the project. After several weeks of phone calls and knocking on doors (during COVID and in the middle of summer!), we had 81 signatures that represented over 75% of the 475 acres. The deal closed and construction began.
Author: Chadwick L. Campbell is an underwriting counsel at Thomas Title & Escrow, a Stewart Company. He works with attorneys, developers, investors, and lenders on complex commercial real estate transactions. He has specialty practices in cannabis-related real estate and home builder and developer deals.
