We represented a commercial real estate investor, a subsidiary of a leading insurance company, in connection with two potential forward deal acquisitions of substantial apartment projects nearing completion. Each project – comprising over 250 units with construction contract guaranteed maximum prices (GMP) each exceeding $35 million – presented the opportunity for our client to secure the assets before the sale price escalation and heightened competition typically associated with the purchase of fully completed properties materialized. Such ‘forward deal’ transactions provide a mechanism to fund the remaining construction costs through closing and beyond but assume, and price-in, minimal risk to complete the construction – making good contracts an essential part of the acquisition. Given the common ownership interests among the real estate developer seller and its general contractor, our review of the Owner-Contractor Agreements focused on mitigating potential conflicts and ensuring fair terms to protect our client’s proposed investment. Our analysis suggested potential contract amendments on many issues, including scheduling, GMP definition and enforcement, cost controls, change order procedures, payment terms, subcontractor management, insurance and indemnity provisions, warranty limitations, dispute resolution, and mechanics’ lien risk mitigation.
