M id A tlantic Real Estate Journal — Brokerage Directory — July 28 - August 10, 2017 — 3C
B rokerage D irectory
By Neil Andrew Stein, Esquire, Kaplin Stewart Brokers Beware – There’s Trouble In River City
n Broadway, “TheMu- sic Man” cautioned against “trouble in
commercial real estate deals. While any real estate pro- fessional is familiar with cus- tomary construction defect, environmental and breach of contract claims, more complex financial fraud and securi- ties cases are being brought against these third parties. This evolution in strategy is occurring because the na- ture and complexity of real estate investment continues to evolve. Real estate deals have matured, from individual holdings to 1031 exchanges, tenant-in-common vehicles and now real estate invest- ment trusts and crowdfunding.
These transactions may, ex- plicitly or implicitly, constitute the sale of a security or other form of financial instrument. So, when considering the form of investment vehicle, a third party must anticipate being named in a complaint alleging financial misman- agement, securities fraud and breach of fiduciary duty. Prudent third parties must seek to minimize these expo- sures through properly draft- ed transaction documents which include appropriate disclosures. Consideration must also be given in docu- ments to forum designation,
choice of law and the selection of arbitration or litigation remedies. Some may naively believe that a civil lawsuit for a failed real estate venture is the worst-case scenario, but this is simply not the case. Due to the frequency of investors seeking retribution after los- ing money, like Mr. Berger, any third party in a real estate transaction is at risk. Risk may not come just from a lawsuit, but may stem from the government inserting itself. The SEC remains ac- tive in the enforcement of securities and financial fraud
laws and a change in the oc- cupancy of the White House may not matter. In any event, state attorneys’ general would likely fill any void in federal enforcement. A prepared third party will ensure that it is aware of these issues and will take all neces- sary precautions if, in fact, there is trouble in River City. Neil A. Stein, Esquire is a principle of Kaplin Stew- art Meloff Reiter & Stein, P.C. and a member of the Land Use, Zoning & Devel- opment and Real Estate, Business & Finance Trans- actions Departments. n
River City.” In a pend- ing lawsuit, Berger et al v. Cushman & Wakefield of Pennsyl- vania Inc. et al, case num- ber 2013-cv-
05195, the U.S. District Court for the Eastern District of Pennsylvania is examining trouble from River City; an 8.2-acre parcel along Phila- delphia’s JFK Boulevard, marketed as a 12 million s/f mixed-use development, in- cluding 600-foot skyscrapers. Berger’s lawsuit accuses Cushman & Wakefield of recklessly overvaluing the de- velopment and claiming that zoning changes - which were pending before city council at the time - would not affect the development. However, the project was dashed in part be- cause of a pending ordinance to restrict building height. The development was marketed by Charles M. Naselsky, a now convicted former real estate partner at both Blank Rome and Cozen O’Connor. As a result of Naselsky’s involve- ment, both law firms have been named as defendants. A discussion of the lawsuit, still mired in preliminaries, is beyond the scope of this article. The point is that with alarming frequency, seem- ingly innocent third parties such as law firms, appraisers and real estate brokers are being named as defendants in lawsuits stemming from failed
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