The Real Deal

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To prevent bailing buyers, becoming a developer in name only

From the April issue: Lenders who are thinking of kicking developers off a failing condo project may want to reconsider. Boot the developer, and you might lose all your buyers. As a result, some lenders are exploring the option of keeping faltering developers, or sponsors, on in name only. The strategy is being bandied about in response to the so-called "right of rescission," which allows buyers to back out of deals if the sponsor makes any significant change to the offering plan that could adversely affect the buyer. As lenders attempt to replace problematic developers at stalled or failed projects -- a move that would typically require an amendment to the offering plan -- they are going out of their way to avoid triggering the buyers' right of rescission, said Matt Blesso, the president of the development firm Blesso Properties. To do that, some lenders are agreeing to keep the original developer technically connected to a project as sponsor even if they are not involved in building anymore.

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