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David Pfeffer Quoted in Commercial Observer Article on the Increase of Private Equity Funds Getting Involved in Ground-Up Developments

November 7, 2017

Construction chair David Pfeffer was recently quoted in a Commercial Observer article, "Putting on Developers’ Hard Hats, Private Equity Managers Break Risky New Ground.” The article discusses the increase in real estate private equity funds that are making ground-up development a prominent part of their business strategy. David discussed how smart private equity managers don’t want to be developers due to the fact that there are many complexities and risks associated with construction development projects. He noted, "An error or omission in the plans can really turn a project upside down very quickly.”

David also explored potential risks for private equity funds that want to get involved in construction development projects, such as issues related to financial arrangements with contractors, noting "standard-form construction agreements benefit contractors and design professionals…If there’s a waiver of [delay] damages on the agreement, the owner is out of luck collecting that big bucket of damages.” David emphasized that even when a developer has the purview to bring a claim against a builder, the contractor may simply lack the assets even in liquidation to compensate for the developer’s losses. "Even New York City’s largest [sub]contractors are not large companies. So getting a contractor to actually pay on a claim or judgment is very difficult. It’s a problem that [private equity developers] don’t understand.” 

Read the full article.

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