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CA investors in commercial real estate battle

Businesses often reach out to investors to assist them with gathering capital for their business without having to pursue other, often stricter, avenues. Those investing in businesses should be aware or their rights and obligations in such transactions.

Investors are currently engaged in a commercial real estate dispute with the developer of a Hard Rock hotel in San Diego. The investors bought condominium units in the hotel, but claim that they lost millions of dollars when the developer sold the units. They allege that the sales were a violation of federal and California securities laws because they failed to file their offering of investment agreements with the SEC and California Department of Corporations. They also claim that the invested money was misappropriated and used for the hotel, rather than the units. The developer claims that they were not purchasing investments, but instead real estate and therefore assumed the risk of losing their money.

Investors are sought by businesses to provide them with capital without the necessity of taking out a loan from a bank. They are often granted equity in a business in exchange for money and seek a return on their investment when the business turns a profit. Often, they will not bring a legal action against a business for a return of their money unless they were defrauded or their rights regarding the management of the business were violated.

If, on the other hand, the condominium rights are regarded as commercial real estate transactions, the buyers' rights will be those granted under real estate law. Purchasers of commercial real estate are provided fewer rights than residential purchasers as they are assumed to have more business acumen and be more aware of the risks in such a transaction.

The case highlighted above will hinge on how the investments are classified. Any businesses or individuals that have purchased or invested in commercial real estate and feel that their rights have been violated may seek the guidance of a business law attorney to assist them with any potential legal action.

Source: UT San Diego, "Hard Rock condo buyers lose legal fight," Lori Weisberg, Feb. 27, 2014

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