"I've Never Litigated Over a Good Contract”
By Larry A. Rothstein, Esq.

Remember the old Fram Oil Filter commercial? The mechanic is finishing up a complete transmission overhaul. He looks into the camera and tells the viewer that his customer could have saved hundreds of dollars if only he’d invested in a Fram oil filter costing just a few dollars. It’s a riff on age old maxims “an ounce of prevention is worth a pound of cure” and “he’s penny-wise but pound-foolish.”

What I’m about to tell you is against my own interest. I’m a trial lawyer. I litigate and try construction, surety, real estate, and complex business disputes, many of which turn on the interpretation of agreements the parties had executed long before my involvement. Trials are always expensive and always involve uncertain outcomes. In my world the best case has a 1-in-8 chance of going wrong. Such are the vagaries and unknowns inherent in our judicial system. I’ve yet to have that best case, so even “slam dunks” come with significant risks.

Don’t get me wrong, I’m a big believer in the jury system. Jurors almost always get it right, usually more often than judges. You’d be surprised how often the collective common sense of twelve conscientious people, working collaboratively, will achieve “substantial justice.” If there’s one thing I’ve learned in 33 years of practice, it’s that jurors almost always side with the party they like better, or conversely, against the party they dislike more. Much as some of my colleagues would believe they possess magical powers of persuasion and charisma (and there are a few who do), it is the parties whose stories are to be told, not the lawyers, not the experts, who most often determine how the jury will decide their case. Often this means confronting evidence harmful to the client and addressing it honestly and plausibly at the earliest opportunity, usually in the opening statement, if not voir dire. It is far more effective to acknowledge harmful evidence before the opposition can exploit it. Effective witness preparation, reasonable explanations or justifiable excuses will often minimize any otherwise harmful impact. The last thing a trial lawyer wants is to confront harmful evidence which he or she didn’t anticipate or expect.

Most of the cases I try involve written agreements. I will summarize the three types of contracts most of us are familiar with and the types of problems which can arise from each. Next, I will discuss the three principles underlying every good contract and which, if adhered to, will minimize the chances of litigation arising from such contracts. Finally, I will offer a few examples from my own experience where failure to adhere to one or more of the three principles led to litigation. I will also discuss one particularly well-known contract – the Frank and Jamie McCourt post-nuptial agreement – where the failure to adhere to any of the three principles led a judge to rule the post-nup unenforceable and therefore to determine that Jamie held a one-half ownership interest in the Los Angeles Dodgers.

The Three Types of Contracts

Generally speaking, there are three types of contracts most of us are familiar with: the first type is what lawyers call contracts of adhesion. These contracts are drafted entirely by one side – always the one with the superior bargaining power – where the only negotiated terms are price and payment terms. Examples include home and other loan agreements with banks; the purchase or lease of a car; commercial leases and credit card agreements. The rest of the terms – and they often go on for several pages – are all boilerplate. These terms are non-negotiable and these contracts are rarely litigated. Why? Because if the bank sues you, it is because you are in default and you will lose. But if it is the bank that breaches, you are likely not to be able to afford to sue it.

The second type of contract is also on a pre-printed form prepared by one side, usually with somewhat greater bargaining power. More terms are negotiable. Examples include: most construction contracts (where I’ve tried many cases); residential leases; small to medium-size business acquisitions; syndication agreements. These contracts are more likely to find their way into litigation because there are more ways to default, but also more excuses for default. The terms are more likely to be in dispute and the conduct of both sides may be in issue. And unlike the adhesion contracts in the first group, parol evidence – oral explanations offered by either side to explain or interpret the terms of the agreement – may be admitted, in which case it often comes down to a he said/she said dispute where witness credibility becomes all the more critical.

The third type of contract is one drafted by the parties over a few drinks on the back of a cocktail napkin. Seriously, these are contracts made specifically between the parties and often without benefit of counsel. We see them all the time. These contracts are often made by legally unsophisticated parties with roughly equal bargaining power. Here, terms, conditions and the intent of the parties is not clearly expressed, leaving it to the court to divine the parties’ actual meaning. It is also important to recognize that in these types of situations, courts, not juries, are empowered to interpret the terms of a written agreement.

The Three Principles of a Good Contract

So what makes a good contract? I think there are three principles: First, the contract should be fair to both sides. This sounds intuitive and it is. When a contract is fair, it motivates both sides to achieve their respective goals and encourages mutual performance. Also, at the time the agreement is made, both sides believe they are each capable of performing its terms.

Second, the terms must be clear and definite. This also sounds intuitive, but you can well imagine how often ambiguities give rise to litigation.

The third principle of a good contract is that foreseeable risks to both sides must be foreseen and reasonably allocated. Often the parties and sometimes even lawyers fail to consider risks that may occur: What if the market turns around? What if we get divorced? What if a third party, whose cooperation or consent is needed, refuses to cooperate? We will be looking at contracts which violated one or more of these principles and the parties wound up paying dearly as a result.

The McCourt Post-Nuptial Agreement

As many of you know, Frank and Jamie McCourt announced in 2004 that they were buying the Los Angeles Dodgers from News Corp. In 2009, they separated and last year completed one of the most expensive divorce trials in history, with each side spending millions on attorneys’ fees.

At issue was the interpretation of the McCourt Post-Nuptial Agreement which they executed in 2004 in anticipation of their acquisition of the Dodgers. There are at least six different versions of the agreement, drafted by a Boston lawyer with a large national law firm who represented both Frank and Jamie and who apparently knew nothing about California community property law. Even if you are entering into an agreement with your spouse, make sure the agreement is reviewed by a lawyer for each side. This is always true. If one party has his or her lawyer prepare the agreement, have your own lawyer review the document. That’s the Fram Oil Filter. Otherwise, you’ll be paying a litigator like me to rebuild your transmission.

On its face, the agreement purported to give Frank ownership of the Dodgers and Jamie ownership of the couple’s real and other property. Jamie, a University of Maryland-educated lawyer who also holds an MBA from MIT, claimed the couple’s intent was to give her sole title to the real property in order to shield it from the Dodgers’ creditors if the team continued to lose money, but that there was no intent to actually divide any of the couple’s assets between them. Why would Jamie agree to receive assets worth maybe $20,000,000, in exchange for giving up her interest in a team they were buying for $471,000,000?

This case stands as the poster child for why bad contracts lead to litigation. It managed to violate all three principles underlying every good contract.

• It is highly unlikely that the couple really intended to split their property by giving Jamie assets worth $20,000,000 and Frank an asset worth at least twenty times that. Thus, it was inherently unfair to one side.
  
  
• Sometime after the agreement was drafted, the lawyer switched the original word “exclusive” (referring to Frank’s interest in the Dodgers), in the addendum to “inclusive” without bothering to tell either party. There are three signed versions of each agreement. The lawyer drafting an agreement never wants to testify later in a trial over the agreement’s meaning. This lawyer did, claiming he changed the words to comply with the intent of the parties. Given that the terms “exclusive” and “inclusive” are opposites, could the switch in terms have been be any less clear and definite? It would not have been difficult at the time for the lawyer to advise both sides that he believed he made a drafting error and to have each side acknowledge that the second version reflected their true intent (assuming it did). It is always better to make any required modifications to an agreement before an issue arises over its meaning.
  
• The lawyer who drafted it was not well-versed in the area of law to which the post-nuptial most related, namely California community property law. This was because he was a transactional/business lawyer who failed to properly allocate a foreseeable risk – the risk that the couple might later divorce. (Incidentally, if the intent of the property division in the post-nup was to shield the couple’s homes from creditors of the Dodgers without intending the assets to become their respective separate property, then the agreement could constitute a violation of the Uniform Fraudulent Transfer Act.)

Here, there was plenty of blame to go around. First of all, the lawyer had a non-waivable conflict of interest. There is no way he should have been representing both sides of this transaction, particularly if the intent was to divide marital property as disproportionately as this agreement purported to. Also, stated earlier, the lawyer was not sufficiently well-versed in the law applicable to the agreement (California community property law). Don’t hire a workers’ comp lawyer, even if he’s your brother-in-law, to review a real estate syndication agreement. See a specialist. Let me repeat: see a specialist.

Jamie, the Maryland lawyer and MIT MBA, claims she didn’t bother reading the agreement because she trusted her husband. The lawyer claims that he went over every paragraph with both of them. My advice: trust, but verify. The McCourts should have hired two separate lawyers to review the agreement. Think how much they would have saved later.

Here are two examples of bad contracts which I’ve litigated:

The Skilled Nursing Home Sale

This case involved a Letter of Intent (LOI) to purchase two skilled nursing homes for $4,000,000. The LOI was a classic type 3 agreement typed up by the buyer with several bullet points. First of all, wouldn’t you hire a lawyer if you were buying (or selling) a $4,000,000 business? The LOI was signed by the buyer individually, not by the corporations he intended the sale to transfer the facilities to. There were three equal shareholders of two separate corporations who were the sellers. It was unclear if the shareholders (who were feuding with each other) were signing in their individual capacities or on behalf of the corporations or both.

Incidentally, LOI’s are generally enforceable as long as its terms are reasonably clear and specific and doesn’t require subsequent ratification or approval. It is common in business to agree to deal points with the understanding that a more formal agreement will be executed at a later date. If you don’t intend to be bound by an LOI or “deal points memorandum,” be sure to include escape language in the document such as: “This is for purposes of reaching a binding agreement at a later date and is not intended to be binding on either party hereto.”

The real problem here was that a condition of the sale required the landlord “to execute a new lease with interim approval of the existing lease for 30 days.” The landlord owned the real estate (land and improvements) on both facilities but was not a party to the LOI.

Under California law, a commercial landlord may not unreasonably withhold consent to an assignment or sublease of an existing lease. A commercial landlord is not required to consent to a new lease. After the LOI’s were executed, but before obtaining the landlord’s consent, the buyer and sellers entered into temporary operating agreements for both facilities (this is standard practice in the sale of nursing homes to allow the new operator to obtain licensing). The buyer then took possession of both facilities and began operations.

During this time, the buyer had entered into what appeared to be good faith negotiations with the landlord to execute a new lease or an extension of the existing lease (obviously the buyer needed a long-term leasehold to secure his investment) when, quite unexpectedly, the landlord refused to consent – even to an assignment or sublease of the existing lease. Immediately the sellers, aided and abetted by the landlord, entered into new LOI’s with a third party buyer for $4,100,000.

The buyer sued for breach of contract, interference with contract and other serious business torts, claiming damages of $20,000,000. All defendants demurred. The buyer argued that “new lease” was susceptible to meaning either a transfer or sublease of the existing lease, in which case the landlord’s consent could not be unreasonably withheld. The court sustained the demurrers without leave to amend on the grounds that the “new lease” was not susceptible to the interpretation urged by the buyer and therefore the landlord had the right to unreasonably refuse his consent to a new lease.

There are at least three lessons here: First, understand that lay people often use words or phrases that mean something other than what they intended or use them in a way that can be misinterpreted. Thus, principle two – that the terms be clear and definite – was violated. Had the buyer spent $1,000 to have a lawyer review the LOI before it was executed, it would have saved him millions. Second, there was no “savings” provision in the LOI in the event the landlord refused to consent to a new lease or an extension of the existing lease. Assuming both sides were otherwise acting in good faith (and the underlying facts suggested that neither the sellers, landlord, or subsequent buyers were), the foreseeable risk that the landlord might refuse to consent should have been allocated to both parties, not just the buyer. Thus, the third principle is violated.

Third, and this is just common sense, if the deal is dependent on the consent or affirmation of a third party, try to ensure that such consent or affirmation is obtained before the contract is executed. Elimination of foreseeable risk at the outset is always better than attempting to allocate it as a future possibility. Of course this is not always possible. Better a future allocation than not providing for it at all.

The Billboard Lease

If any of you know the San Fernando Valley, the biggest, ugliest billboard you will ever see is located at the southeast corner of White Oak and Sherman Way. It is vertical rather than horizontal. My clients, the fee owners, have owned the property on which the billboard now sits since the 1950's. In early 2001, a tenant who then operated a rent-a-car agency located on part of the property, proposed leasing the entire property from my clients. In addition to the rent-a-car agency, the clients had been collecting rents from two or three auto mechanic garages and some miscellaneous parking. Oh, and also from the billboard company. The billboard was located directly above the rent-a-car agency. During the negotiations, the tenant sent the fee owner a letter totaling all of the rents which the owners had been receiving, including the agency, the garages and the parking, but not the billboard rent. The tenant offered to pay the fee owners $1,000 a month more than the sum of the described rents in the proposal and the clients agreed.

They drew up a new ground lease modeled after the ages-old rent-a-car agency lease and each side had their own counsel review it. You can guess that there was no mention of the billboard lease in the ground lease and neither lawyer thought to ask their respective clients whether or not the description of the premises included all of the rents, issues and profits relating thereto.

For several years thereafter, the fee owners continued to collect the rent from the ground lessee and also from the billboard company. The value of the billboard income, over its life, including renewals, was more than a half million dollars.

In 2005, the ground lessee sold his interest to another individual. By now, the rent-a-car agency had been replaced with a Wendy’s Restaurant located underneath the billboard. When the new lessee looked up at the billboard, he asked his predecessor who was collecting the rent on the billboard. When the new lessee learned it was the fee owners, he sued.

The lease, of course, made no mention of the billboard. The new lessee claimed that because the billboard was physically attached to the demised premises, it should be deemed part of the leasehold transfer. At trial, the ground lessee called an expert witness on drafting commercial leases who testified that unless expressly excluded, all rents, issues and profits from the leasehold are deemed transferred to the lessee.

Over a ten-day trial, we presented overwhelming evidence that the conduct of the parties, both before and during the original ground lease tenancy, demonstrated that there was never any intent manifested by the lessee that the income from the billboard lease belonged to anyone other than the fee owners.

The court ruled in our favor but ignored the evidence we presented. The court reasoned that it could not add a new term to the agreement, that is, the court could not add the billboard income to the ground lease as part of the demised premises. Lessee appealed. The Court of Appeal affirmed, but on different grounds. The Court of Appeal specifically relied on the evidence we presented showing that the intent of the parties was never to transfer the billboard lease as part of the ground lease. Fee owners were ultimately vindicated and recovered all of their attorneys’ fees – well in excess of $300,000 from the lessee.

Although based on different reasoning, both the trial court and the Court of Appeal reached the same result because it would have been manifestly unfair to award the billboard income to the ground lessee. The pre- and post-contract formation conduct of the parties established that the ground lease was never intended to transfer the billboard income. In determining the intent of the parties, courts will often – and they should – consider which side’s interpretation is more commercially reasonable, that is, which interpretation is more fair. Here, the fairness principle proved essential to our success. But the second principle could have done us in. By making no mention of the billboard, the terms of the ground lease were not clear and definite. Although this was a type 2 contract (roughly equal bargaining power and lots of boilerplate language), it was reviewed by lawyers on both sides (who later testified during the trial). Neither lawyer was an expert in commercial leases. Both missed the billboard income which the fee owners had been receiving. The lawyers should have asked, “has all of the income you’re receiving from the property been accounted for?” “Is there any income you want to ‘carve out’ of the lease?” Successful lawyers make their living asking the right questions.

These are but a few examples of the difficulties clients face when their agreements violate one or more of the three “golden” principles described in this article.

    Larry A. Rothstein, Esq.
    Law Offices of Larry A. Rothstein
    21550 Oxnard Street, Suite 690
    Woodland Hills, CA 91367
    Telephone: (818) 348-7000
    Facsimile: (818) 348-0700
    E-Mail: lar@larlaw.net

This article was adopted from a presentation made to the Real Estate Deal Making Symposium and Syndication Seminar in Reno, Nevada in November 2010.

Mr. Rothstein specializes in construction, surety, real estate and complex business litigation and trials.

                                                                    *  *  *

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success. Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor.

Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/.

Share This

Similarly, if you can't pay for a car all the day you buy it, the finance companies have made it easy to slice it into dozens of payments, each one planned out to be manageable for your monthly operating budget. Homes are the same. Few can pay for a home in cash on day one. The idea of 30 year mortgages helped make it possible for nearly anyone to afford a house.  The goal was, upon retirement, to own you home free and clear. The concept of slicing up the elephant so that it can be eaten in little bite-sized chunks is well understood in the United States. It's part of our capitalistic culture.
 
All risk is managed this way (it is syndicated) but what about bigger pieces of real estate? Is it possible to take down big opportunities by yourself? In most cases, no. And in most cases, real estate is not organized in a stock company format like corporations that can be sliced into small pieces of stock that trade on a daily basis.

Part of the reason for this is that the tax code favors real estate and makes it undesirable to put into a corporation. There are other tax structures that have been developed, such as REITs but the opportunity for retail investors is nominal by the time they get into one of these corporately-managed investments.

That's part of the reason for the emergence of the private placement industry. Private placements make it possible for individual investors, self-directed IRAs, pension funds, and others to participate in much larger real estate investments than anyone could handle by themselves. A well-structured private placement syndication can produce dramatic results for the participants.

Because these entities, which typically are organized in LLCs, can be exempt from regulation by the Securities Exchange Commission and they're not registered the way that public corporations are, there are special some rules that govern who can participate. You have to be somewhat financially successful to be able to participate in these activities, but if you are at that place in your life and you are fortunate enough to be able to invest in private placements, it's a wonderful opportunity that you should explore.

Part of the reason that private placements are outstanding is because the cost of operating a private placement is relatively low, compared to the enormous amount of overhead cash to running a public company with the annual and recurring legal fees, accounting fees, and other regulatory requirements. Private placements are typically light on these expenses, and consequently, the returns that are developed in private placements are much higher than they would be in a comparable public environment. But again, because they're not registered and regulated by the government, only a select few may participate.

Unfortunately, private placements are private, and in order to get in the “club”, one has to meet certain minimum financial criteria. If you live in a big city, it's not terribly difficult to meet these criteria, but not everyone qualifies. For those that do, investing with a group of people, which is the basis of our capitalistic society, is the best way to take down bigger pieces of real estate and it's the best way to profit from the dysfunction of the real estate market that we're experiencing now.

As I watch broadcasts of what's happening in the stock market and the commentators talk about what investors should do, there's a certain assumption that investors will only invest in the stock market, but readers should know there are many alternatives beyond what's offered to you by the companies that control retail investments. And most of those will provide yields that far exceed the returns provided in the equity markets.

Don’t be bashful about taking charge of your investment strategy. Place your cash, your IRA accounts, your 401(k) and other assets into the investments that you believe will return the most to you. Do not be limited by the retail stock brokerage firms. Ski shops sell products for skiers. If you play another sport, you need to go to another store. Treat your assets the same way. Don’t let the store owner tell you what to do with your investments. And if you can’t eat the whole elephant by yourself, don’t be bashful about joining with others to make it happen.

                                                                    *  *  *

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success. Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor.

Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/.

Share This

Most financial representatives, whether stock brokers, money managers, financial consultants or otherwise, work for organizations known as broker/dealers. Broker/dealers, as the name implies, sometimes act as brokers and sometimes, they act as direct dealers (owning a position) in securities. These organizations are licensed by the Federal Government (the Securities and Exchange Commission, or SEC) to sell securities, collect money from customers, and execute transactions. Because they receive commissions, they can have a conflict of interest with their customers, but when they act as dealers, the problem is even worse.

Very frequently, broker/dealers, especially the big Wall Street wire houses will acquire positions in securities. You've seen movies where the sales managers get on the "horn" and tell the brokers which stocks to move that day. There would be extra commissions if they move those stocks. Brokerage firm sometimes take positions in securities for many legitimate reasons, and when those positions need to be moved, the natural buyers are the clients of the firm. Those buys are not necessarily the best buys for the clients and those buys are certainly not being made for the clients’ benefit. Unfortunately, they're frequently made to benefit the broker and his broker/dealer.

Rather than allowing the fox to mind your chicken coup, some investors prefer to engage a Registered Investment Advisor (RIA). An RIA, works for you for a fee and makes suggestions to you, but does not necessarily take commissions on the transactions that they recommend. They can be much more pure in their selection and recommendation process. A lot of investors don't like to pay the 1% to 3% advisory fee they charge, but it's a lot cheaper than the invisible “fees” that are paid to your broker/dealer when you get a bad deal.

Transparency in the securities business is very high – if you are an Albert Einstein type with the ability to carefully read the prospectus of every mutual fund and other investments to know how much load, fees and commissions are being charged against your investments. If you're not reading these materials carefully, you will be surprised to learn how fast the charges add up. The big firms load their investments with tons of fees that make it nearly impossible for investors to generate good returns on their investments. If they share the profits with you, the investor, how will they pay their own commissions and salaries? The system is set up to provide a good but not great return to retail investors.

RIAs frequently make suggestions of both traditional stock and money market types of investments, but they also reach out to limited amounts of alternative opportunities such as real estate, commodities, oil & gas, or start ups to enhance the returns of their clients. Since they don’t profit directly from their suggestions, they can be objective and creative. Keep an open mind when working with an RIA, because sometimes that might be the best way to go.

RIAs are not on the same side of the table as you because they don’t make money when you do, but they are rather independent and are not on the other side of the table – working against you.

Isn’t a better business model one where both you and the investment sponsor make money at the same time? If the deal is successful, everybody wins. If not, everybody is disappointed. The big boys tend to rig the game, but smaller companies can set it up so that everybody wins. Look for this business model in your next investments.

The world of investing is complicated, and it's further compounded by the self-interest of the people who represent the investments. Trying to mitigate the self-interest component will make a big difference in your investment strategy. And remember, if you want some clarification to help you make better decisions, feel free to contact me.

                                                                    *  *  *

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success. Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor.

Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/.

Share This

But that doesn't describe most of us, at least not the people who read my column. For most of us, we're attached at the hip to our customers, to our clients, to our vendors, to our businesses, and to the sources of our revenue. People expect, like never before, that we'll be there for them, that we'll answer their questions, and that we'll attend to their every need at every hour of the day.

I just came from breakfast with a CPA friend of mine, who just returned from the south of France on a two and a half week vacation. He said it was the best vacation of his life. It was long, it was luxurious, and it was perfect in every way. But he also said that his cell phone was working the entire trip because he paid for some conversion to a European standard. He used his cell phone to communicate with clients during the entire trip, but still came back feeling like he had a real vacation.

It's just a fact of life, there's no way around it. We have to be tethered to our businesses, and there's no going back. I don't think that any of us can imagine a world where we disappear and people don't notice that we're gone.

For me, one of the only vacations where I can really go down deep and disappear is a cruise. Somehow on the open seas, even though ships have satellite Internet reception, I'm able to put the phone in the safe in the room and enjoy the family and the special time that we have together.

Next time you go on vacation, try telling your clients that you'll be gone just for a short while. Try putting off meetings, conferences, and other activities, so you can really enjoy the special time that you don't get very often with your family. People are willing to be more respectful of your private time than you might think. If you have a business partner, trade some of your responsibilities temporarily to them; and be ready to accept those responsibilities when the shoe's on the other foot.

I always say that everything in business is a team sport. The current business climate does not favor the lone wolf. And part of the reason, beside the complexity of governmental regulation and litigation is the expectation from our clients that we'll be there for them 24/7/365. But don't forget that your family also deserves a slice of your energy and time. So cut the proverbial cord (or wire) and be sure to make some time for them at least a few times a year, before your kids are grown and off on their own.

                                                                        *  *  *

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success. Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor.

Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/.

Share This

Living through the stock market roller coaster has been difficult – in fact, it is paralyzing. I am so focused on it that I am having trouble concentrating on work that I can actually control. Ironically, the chaos of the week has made one issue crystal clear for me.

The more I understand the stock market, the more I realize that I don’t get it at all.

Most individuals have their money in the stock market because their retirement accounts force them into the market. Those funds are forced into the market because the companies that manage those funds are stock market companies. A coincidence? The stock market companies supply pension plan participants with a small slate of stocks and mutual funds to choose from. They don't like to call it a slate because that increases their liability in case something goes wrong. But in effect, when you are provided with two, five or seven choices, it is basically a menu that somebody, who pretends to care about your money as much as you do, has provided to you so you can make a simple choice.

Most people think that they live in a self-directed world because they are able to pick the investment vehicle for their capital. But could this be anything further from the truth? In reality, you are not self-directing when you pick from a slate with investments that yield 2% or 3%, and maybe stretching it into really crazy territory, up to 5% annually. It doesn't sound like self-direction to me if you have to be in the stock market at this crazy time and you don't feel good about it. If you would rather be in commodities, real estate or some other asset class, you have to take charge. Do you want real self-direction? So do we.

The entrepreneurial management team of my company has come up with a mechanism for delivering true self-direction to pension plans and IRA funds. We work with CPAs and pension plan administrators that convert the restricted, “cookie cutter” plans into opportunities for true self-direction.

It is the entrepreneurs in our society who always solve the big problems and allowing people the freedom to manage their money in a way that is suitable to their personal style and risk temperament will be no exception. Entrepreneurs will help consumers to solve this problem too, helping investors to break free from the shackles of the big wire houses on Wall Street.

We will be sharing strategies in this area, but for a “heads up” on how we are working with retirement assets, please be in touch with me.

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success.

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor. Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/.

Share This

The expulsion of the United States from the AAA Club, that is the club of 16 nations with AAA ratings, from both Standard & Poor's and Moody's Rating Service now contains only 15 members because the United States was kicked out on Friday afternoon. The Obama Administration is trying to blame it on a math error by S&P while the mainstream media is soft-pedaling the issue. But it is much more serious than people realize. In fact, the problem is an emergency.

It’s not really about stock market volatility, or oil prices, real estate values or even the interest rate. It’s about being second rate.

The perception of the United States as the global powerhouse and world leader has been irreparably tarnished. The conduct of our government representatives and our politics has done damage that is beyond comprehension and it has opened the door to trouble and trouble-makers.

The initial thorn in our side is in Asia. The Chinese government has already called for international oversight over the United States economy because they are the largest creditor of the United States government. They do not believe that the United States currency should any longer be the standard that dominates world monetary transactions. They further do not believe that the United States has been fiscally responsible, and as a giant creditor, their opinion carries some weight. You may not hear much about this because most of the other countries who are creditors are sugar-coating their opinions by saying that this is really not such a big deal. But I believe that it is. The United States is still the largest and most stable economy in the world, but our reputation has been tarnished.

The Chinese are not in the habit of sugar coating anything. China’s government has been looking for an opportunity to supplant the United States as the dominant force in every category of business, commerce, finance, manufacturing, and other disciplines, every day over the past 30 years, and they are taking full advantage of the opportunity to run us over now.

Ten days ago, I chaired a round table of high level business leaders in Los Angeles. There was consensus that the debt ceiling (before it was raised by congress and signed by the president) was a serious issue, but that it would somehow blow over. My response was that I can't imagine that in 50 years from now, the government of the United States is going to look the way it looks today. Something has to change because the accumulation of debt cannot continue indefinitely, and the gridlock in Washington cannot continue. Putting 40 cents of every dollar on a credit card can't continue, and further, having nearly 50% of the entire population on some form of public assistance is not something that the country can continue to bear.

I'm not a tea party supporter, but I can see that a lot of what they demand, at least on the economic front, will come to pass. Fiscal reform is inevitable because the impact on this country will be devastating if appropriate action is not taken, and quick.

I wouldn't want to be the person who has to tell retirees that their benefits have to be cut; and I wouldn't want to be the person to tell poor people that their benefits have to be cut; I wouldn't want to have to bring the bad news to anybody's attention. But Congress cannot continue down the path that it's on.

The sheets have been pulled off the bed in Washington, and now everyone can see what's going on. Everyone is clearly focused on how much debt we carry, and on how much money we continue to borrow every single day. It has to stop. The impact on consumers at every level will be known starting Monday when the stock market opens. The impact on business will be dramatic; the impact on the ability of the country to create jobs will be dramatic. The impact on interest rates could be dramatic.

Some news reporter said that a little tick up in interest rates shouldn't be too bad because interest rates are at the lowest rate since the Eisenhower presidency. We live in a world of rationalization. What that journalist neglected to mention is that consumers are carrying their body weight in debt. During the Eisenhower administration, there weren't credit cards. In the 1950s, people had tiny mortgages that they paid off over a 30 year period of time. There were no refinances. People developed equity in their assets. People had one car and they kept it for a long time. There wasn't a consumer treadmill the way that we have it now. Nothing can be compared to the days of old.

This opportunity leaves China chomping at the bit, and I hope that the United States government and the people who put them in Washington will be level headed enough to create a vision for this country that starts to erase debt and starts to create some level headed thinking, because otherwise our country is not going to continue winning the race that we run every single day.

Our pride as citizens is affected and our pocket books as consumers have already been trampled, and that will continue and get worse. We've handed this opportunity to the Chinese on a silver platter and they now are working to lock down their win in a dramatic way. I don't believe it's a foregone conclusion, but if we don't take careful aim at resolving the problem, this situation will continue to get worse. Is the American spirit alive enough to keep us in the game?

____________________________________________________________________________________________

<

p class="BodySingle" align="justify">

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success.

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor. Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/.

Share This

The roller coaster that the United States of America has just ridden through the debt ceiling crisis has revealed something that was devastating and unnerving. Many of us did not realize it, but the government has raised the debt ceiling 75 times since 1962. Few increases got any mainstream media attention but this circus brought an enormous amount of attention to a real problem that many of us, including business and global leaders, did not properly understand. We have all known that the government lives outside of its means, but until now most of us probably didn't focus on how much out of its means the government lives.

Taking the next generation's money to pay this generation’s bills is the ultimate Ponzi scheme. It dwarfs by a factor of a million, the damage that was done by the criminals that we've heard of over the last few years, including Bernie Madoff, Allen Stanford and others.

Why are the markets not responding favorably to the delightful debt decrease that our legislators and president have agreed upon? The answer is that now everybody better understands what is really going on under the sheets in Washington. We are living way beyond our means, borrowing from the future to pay for today.

Under this week’s plan, debt is not decreasing at all. Expenses over 10 years will be cut so that we can borrow that amount in the next 2 years.

In the last three years, haven't most consumers learned that they have to get off of the credit card diet? Everybody has learned it, except for the federal government, who has accelerated its spending.

So the reaction by the markets is clear. The stock markets are not happy with the amount of spending reduction, and they are worried about the country’s economic future as a result of it. How many people in our society have their pension plan, IRA funds and other monies tied up in the stock market? Consumers have very little idea about what is going on with their stock market investments. Even though the rules are designed to promote transparency, the complexity makes that transparency, for most consumers, completely elusive.

It sounds like a dangerous place to put your money. But what choice do you have?

You have plenty of choices – but you have to ask for them. You can “self-direct” your retirement funds, which means that you have to take your assets away from people who are consumed with serving themselves and put your money into the hands of people who either are paid to look out for your interest (such as Registered Investment Advisors), or into the hands of people who are on the same side of the table and share profits - making money when you do. More on that next time.

In the mean time, keep an eye on the markets because they are unstable. If you don’t understand the markets, then reevaluate whether or not you should gamble you life savings there. In the meantime, think about Charles Ponzi. Is the government doing what it condemns?                                                            

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success.

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor. Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC , which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/.

Share This

Joel’s Answer:
It's hard to know what the right amount of participation is for the person who is responsible for putting the deal together – or for someone else who assumes responsibility for the debt. It’s a function of how well you sell the value that you add. In the case that you have described, as much as I recognize how you feel that you are the cornerstone of the deal, an investor will give you very little credit for signing the mortgage and assuming that responsibility. You indicated that only 60% of the deal has been guaranteed and that 40% more remains.  Remember, the last dollar, like the last yard in a football game, is the most important dollar. That’s because it's the one that's worth the most, whereas the first dollars are worth the least.

There are two ways to think about the participation for a promoter. The first is the venture capital model, which assumes the promoter or inventor brings value to the transaction. For example, the inventor may contribute intellectual capital of some type. This investment makes it possible to monetize the patents or marketing plans. Alternatively, the real estate model is used when the additional value is forced into the asset, either through appreciation, management adjustments, or other factors.

The model to use depends on what should happen on liquidation. In a venture capital environment, on liquidation, there's probably not much to liquidate because in many cases, the intellectual property of a failed venture is close to zero. In real estate however, there's intrinsic value, regardless of whether or not the promoter adds any additional value. That's the reason that promoters don’t take a substantial percentage of the current value of the transaction. Instead, they take a substantial percentage of the upside that they help to create. Most promoters take real estate fees as they are earned and success fees based on the upside generated in the future of the property.

Signing the note is not worth all that much and the investors might expect you to do this anyway. Remember too that on liquidation, your note will not be the first money to go down the drain. On liquidation, the equity is going to go first and a personal guarantee on 60% debt is not likely to be attacked if you're buying the property right. We sometimes structure in a “Guarantee Fee” for a few points a year, but it doesn’t really affect our back end percentage.

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success.

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor. Joel is CEO of Bullseye Capital , a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to http://www.syndicatefast.com/. 

Share This

The issue that caught my eye and one that I caution our Deal Making Symposium attendees to be laser- focused on is that of structuring the deal properly, so that the promoter maximizes his or her opportunity. The promoter has to go into the deal prepared for as many contingencies as possible because failing to do so might erode the promoter’s ultimate compensation. If there is a shortfall the only place to recapture dollars is going to be from the promoter's share. It will rarely come from the investor's share unless there's a catastrophic problem.

In the case of our alumnus (the “Promoter”), his prospective finder expects some compensation, but the deal did not contain any structure for paying finders of capital on the front end of the deal. The only dollars being paid on the front end were to the promoter for real estate commissions. It was never the promoter's intention to use the real estate commissions to pay finder’s fees.

Hence, the deal had not been designed correctly.

My immediate sense is that once the real estate aspect of the deal became imminent, a phone call was placed to an attorney who was asked to put together a syndication package including a Private Placement Memorandum (PPM), Operating Agreement and Subscription Agreement. I don’t get any sense that a business person designed the deal – the attorney probably wasn’t told exactly what arrangements to make for fees and profit sharing. The promoter probably just asked for some good documents and paid over $20,000. But, because the attorney was not specifically directed on how to structure the syndication, the promoter will probably walk away with a lot less money than expected.

This is not in any way a criticism of the attorney. It's the promoter’s responsibility to provide the direction of putting the deal together. I never allow attorneys to construct my deals. I always construct them myself and I help the attendees of our Deal Making Symposium program to calculate those transactions so they're done correctly from a financial and business point of view. I don't prepare the legalities, that's the lawyer's job. But the lawyer doesn't map out the business structure because that's the responsibility of the business people.

You must be very careful when you're putting together these transactions. Think carefully through what the likely business issues will be. Plan for them and incorporate them into your documents. If you don't lay out the deal correctly, then you will inevitably end up on the short end of the stick.

If you have an opinion or thought on this topic, please write a comment in the form below. Share this blog (www.joelblock.com/blog/) with your friends. Thank you for being one of our loyal readers. We appreciate you and are rooting for your success.

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenues and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and is an astute investor. Joel is CEO of Bullseye Capital (www.bullseyecap.com), a full-service real estate company supporting owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC (www.BullseyeCapFund.com) which is an investment company that acquires distressed real estate by working with accredited investors.

A leader in real estate syndication, we offer seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether single family, multi-family, commercial, or anything else. For more information and complete details, please go to www.syndicatefast.com

Share This

This weekend, I went and saw the new movie Green Lantern with my son. The message was profound and obvious. Of course it was about good versus evil, which is how all of the comic books were written in the '30s and '40s. But it went further. This was mostly about human beings having two powers. One is the power of want and the other is the power of fear. And those two elements are always at odds.

In the movie, the superheroes can control anything they wanted if they wanted to control it badly enough. But there was a different group of super-villains, the bad guys, who could control things by manipulating the fear that they knew exists in humans. It made me wonder about real life.

Life never rewards people who are afraid and run away. When you're not getting the things that you want, think very carefully about why not. More than likely, it's because your fear of success, or your fear of achievement or your fear of something else is greater than your desire and your will to make it happen.

It's rare that a movie speaks so loudly and clearly about the reality of the human condition. But this movie was one of them. And by the way, it was a good movie too. My son and I both really enjoyed it.

If you have an opinion or thought on this topic, please write a comment in the form below. Let us know what you think and if my thoughts resonate with yours. Our followers enjoy reading what others think. Send a link to this blog to one or more of your friends and get them to become one of our subscribers. This will help us expand our circle of influence and allow us to share this and other great material with your friends. Thank you for being one of our loyal readers. We appreciate you and we are rooting for your success.

Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and astute investor.  Joel is President/CEO of Bullseye Capital (www.bullseyecap.com), a full-service real estate company that supports owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services.

The company also provides investment opportunities to accredited investors.  A leader in real estate syndication, the company invests in properties and offers seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether it is for single family, multi-family, commercial, or another kind of investment property. For full information, go to www.syndicatefast.com.

Share This