Tools in the toolbox: Applying the right legal tools to the right risks
During my time at InSite Capital (now Huntington National Bank), we evaluated - and invested in - real estate transactions across Michigan and Ohio. While the spreadsheets and financial projections were important, the real value came from our team conversations in the conference room, exploring questions such as:
- Does this deal make sense?
- Where could it fail?
- What assumptions must hold true?
- If things go wrong, who bears the risk?
At the heart of every successful transaction, deal structure follows risk. Only after understanding and evaluating the risks did we decide which legal "tools" - and how to use them - would appropriately mitigate those risks:
- Collateral;
- Guarantees;
- Covenants; and
- Reserves
Used correctly, these legal tools enable deals to move forward. Used incorrectly - or applied without regard to actual risk - these tools slow approvals, create friction, and can jeopardize a deal.
When legal tools are thoughtfully aligned with underwriting:
- Lenders/Investors gain confidence;
- Approvals move faster; and
- Transactions are more likely to perform after closing
Legal structure is most effective when guided by risk, not just precedent.
If you’re working through a real estate finance transaction and want to discuss how to apply the right tools to the right risks, in the right way, let's connect!
