The Dirt Lawyer's Blog Archive

We are at the unofficial end of summer this weekend. What has this meant for me the last, oh, I cannot remember how many years? Time to buckle down and prepare for a maelstrom of work. When I left the BigLaw track I thought that might change. Guess again. In fact, the complexity and the burden of the deal flow might be worse now than before. But the profits should be a little higher, too. And, based on a meeting I had with a client yesterday, 2007 will be no different. So, as Jerry Lewis yells "Timpani!" (which is the musical instrument I play, by the way) on Monday evening, I know it will be time to settle into a heavy work pattern. Recession? If there is one or a fear of one, I'm not seeing it.

General George Patton and Dubai have one thing in common: the ability to consume real estate rapidly. Thanks in part to the amazing Red Ball Express delivering supplies, the Allied armies were able to move at unprecedented rates through France in 1944. Dubai seems to be constructing buildings at a similar rate. My recollection is that the only thing that slowed Patton down was a shortage of fuel supplies. The same could eventually occur in Dubai. I stumbled across this post warning that without massive expenditures on new plants there could be more brownouts and blackouts in Dubai. Part of the problem appears to be a shortage of natural gas. I also find it interesting that the possibility of solar energy is being considered as a power source. Given the amount of sun in that part of the world it makes sense even with so much oil in the area.

Just as others are concerned about layoffs, DLA Piper steps to the plate and gets a solid hit by announcing that it is opening an office in Abu Dhabi, considering moves into Qatar and Mumbai, all in connection with an expansion of its real estate practice. (Call me naive, but I thought they already had a global real estate practice.) Chicagoans who have been around more than a few years will remember that the firm's predecessor here, Rudnick & Wolfe, had about the biggest and best dirt practice in town for many years. So perhaps this kind of move is less surprising to us in the Windy City. I think the firm hit the nail right on the head by announcing this kind of expansion and at this time.

Kroger is building a new grocery store down here in Bourbonnais and it was scheduled to open on September 13. Unfortunately, in a situation that almost reminds me of a bar exam question, the opening has been postponed indefinitely because there is no "curb cut" permit, or a permit to access the property via the adjoining street. (Kroger operates in a nearby building that it rents; I know one of the owners of that location and I’m sure that person is happy.) I do not purport to know all the facts here, nor am I assigning blame or even suggesting that anyone is in fact to blame. But, had I been involved, is there anything I could have have done to try to prevent this problem? Maybe, maybe not. At the least, I would have tried to obtain title insurance over this issue when buying the land. A basic title policy only insures ownership of the property in question. In a commercial deal of this size, if representing the buyer I would have insisted upon obtaining an access end

Yup. The SuperCenter type stores were already going smaller because of better distribution channels. But now we're hearing more and more about smaller store formats. Here's David Bodamer's post on the topic.

Your guess is probably as good as mine. There's mixed feelings in this post , with a reaction that if any area might get hit real estate might be among them. This has probably not happened since the early 90s when I left law school. Some things I do know are as follows: By the late 1990s there was a complete dearth of good real estate lawyers out there. I don't see that kind of black hole happening again. We are also, however, in a different paradigm than we were some years ago, when even then there were associate layoffs. Whereas profits have always been important, when you see the things going on these days at some firms to maximize profits over any other factor, then associates and non-equity partners are, in my opinion, more fungible than ever. Well-run law firms will be prepared for this and will have reduced hiring in advance and taken other measures to be in a position to ride out a market slump. They will also be willing to tell partners to be prepared to take such

Sorry, I could not think of a clever headline this morning -- must be vacation mode though I am writing while the boss is at the spa. An investment group called Save the Queen has bought the remainder of the Queen Mary's lease in Long Beach (including the surrounding retail) through a bankruptcy auction. Because I have always liked this place and used to live nearby, I will be interested in seeing what happens next. The bidders bear out O&S Holdings, which in my opinion had a very dull redevelopment plan. Will the winners do any better?

I am taking a few days off in Wisconsin (okay, I do have a brief conference call tomorrow morning to wrap up a very important deal for a client), but I'm trying to keep up on news. I noticed that Kohler is going to open a retail store and Waters Spa in Burr Ridge. Actually, the budget picture is perhaps not as bad as I intimated, but only because we just finished building a new shower in our house (yes, it is all Kohler, but via Lowe's). Knowing that there is a spa that nice in the relative neighborhood (40-45 minutes from home, 30 minutes from the office) is a good, albeit expensive, thing. We have nothing where we live to compare, and the spa half an hour south of us is just not our cup of tea (thus no link to it here). The short version of this post: given the location and demos, Kohler may just as well back up the armored car for all the money they will make in Burr Ridge.

I wrote about Whole Foods earlier this month, albeit in the context of downsizing stores , and not the anonymous postings of CEO postings of CEO John Mackey touting the company or its battle with the FTC in acquiring Wild Oats Markets. I'm not alone in being tardy; David Bodamer just got around to the discussion about the ruling that the marget does not violate anti-trust laws yesterday. (Also take a look at a story on the deal in Retail Traffic that meshes with the court's ruling.) Notwithstanding the FTC, the merger is now basically a done deal since a stay to delay it was denied pending appeals. And this is the right call. Retail Traffic hit it right on the head: Whole Foods now competes with the supermarket industry in general, not Wild Oats. So there's about to be one less retailer for you landlords out there.

(with apologies to John Maynard Keynes....) A long time ago in this blog , I hoped that another ABN-AMRO type bank such as RBS would acquire LaSalle. My biggest fear for the local economy was that Bank of America would be the buyer because it would mean major layoffs and the possible loss of a major local corporate citizen to the folks in Charlotte notwithstanding promises to the contrary. Alas, some think the worst could come true. A report is estimating that the merger will cost Chicago some 10,500 jobs, both direct and indirect, as a result. B of A of course says any talk of layoffs is premature, but come on. Can you expect us to believe you’ll many if any headquarters staff here? Will loan committee decisions come from the Carolinas, thus possibly bringing to an end the bank that so many small and mid-sized counted on to get the job done? And what of that great dining room at the top of the headquarters building? (Somehow I bet that stays.) Hopefully this report is a doom a

Gerry Riskin has a great post today regarding outsourcing. Citing a Bloomberg story , 50,000 attorney jobs are expected to be offshore by 2015. If I were a young lawyer, I'd be a little concerned, as the work they are doing is probably that of first and second year associates today. With the high salaries BigLaw pays, why not farm it to low-paid people in India or China or the Philippines or Columbus, Ohio? (Sorry, a partner at Jones Day said that, not me. Fargo, ND was also mentioned.) I know the Philippines the best of these, and it will be a great outsourcing location. Everyone speaks English (it is the official language of the court system), the legal system is a hybrid of US and Spanish principles, and, because of its former ties to the US, our cases (or at least old ones) have precedential weight.

As a follow up to my cap rate post , here is a story in the Journa l stating that even some landlords in London and New York are a little scared, presumably because some bought buildings at a high price under the aggressive expectation that rents would continue to rise at astronomical rates. If the financial services sector declines and hedge funds go under, then all bets could be off, even in markets where you'd normally think you'd be safe. Once again, it's all in the numbers.

I mentioned the other day that I thought some players had to be sitting on cash waiting for a price drop . Here's some confirmation from Susan Diesenhouse in today's Tribune . We already knew Hines was flush with pension fund and other cash, and it also looks like Hines is buying 101 N. Wacker in yet another EOP/Blackstone flip. And I'll bet more than a nickel (a quarter, perhaps?) that Hines and Intercontinental are not alone.

It is here: the age of the $1,000 per hour lawyer . "'Frankly, it's a little hard to think about anyone who doesn't save lives being worth this much money,' says David Boies, one of the nation's best-known trial lawyers, at the Armonk, N.Y., office of Boies, Schiller & Flexner LLP." As the spouse of a doctor, I tend to agree. But let's look at this from another perspective. Many of the people charging these types of rates are the lawyers you will bring in for so-called "bet the company" work. So these lawyers are not saving lives, but they may be saving companies and helping the lives of all those who are gainfully employed there. (Okay, so I am playing devil's advocate here.) As for me? No thanks. I like making money as much as the next guy, but the pressure that comes with it is not my cup of tea, at least not at this stage of my career. And even if I did I'm not sure I'd ever get to the $16.67/minute rate anyway. R

The AP reports , "The National Association of Realtors' Commercial Leading Indicator for Brokerage Activity rose to 120.7 in the second quarter, up from 119.7 in last year's second quarter and 120.1 in the first quarter this year." This marks nine quarters of consecutive growth. Now, the story contrasts this to the residential turmoil, but now the real question is whether this indicates continued growth or a lag. With sound fundamentals one would think the former, but with tightening credit, we'll have to see. In fact, the aforementioned S&P indexes show a 6.6% increase in May sale prices from a year ago, but the head of the index committe indicated, "[t]hese gains appear to be joining the residential market in their shrinking returns." I just know I am busy right now and that I'd better stop blogging and start billing.

I like this idea . S&P is going to start 10 new indexes today to try to track commercial real estate prices by region and by sector. Where they are going to get the information remains a little unclear. Will it come from the public records, from brokers, from parties to the deals (notwithstanding the typical confidentiality clauses), from lenders or from a some or all of the above? I guess time will tell how accurate these indexes will be, but anything is a start. I'd also be interested in learning the methodology of calculating prices back to 1993, and whether there will be a factoring for deal size or for corporate transactions such as portfolio purchases where the value of each asset is not always allocated (though it usually has to be for real estate transfer tax purposes).

Just when you thought there was too much retail in the Rt. 59 corridor, guess again. Here's a story on plans for two more lifestyle centers near Fox Valley Mall, one by Summit Development and the other by the Pennsylvania Real Estate Trust. These will compete against Poag & MacEwen's previously announced center going up at 59 and 111th Street. Here's my analysis of the three centers. Poag: has the advantage of time and landing anchor tenants such as Von Maur. The disadvantage is that it is farther south at 111th, although that may be a blessing in disguise as more people are turned off by traffic on 59. (I was at the opening of Fox Valley Mall back in the 1970s, and I don't think I have been the area in at least ten years because of traffic. No thanks.) Summit: not my favorite location at the intersection of Ogden and 75th, but at least it is the southwest corner. This is probably personal bias from way back. I think its biggest advantage is a smaller size

This is an interesting theory I came across today. The gist of it is that deals have been done at high prices (the so-called "Blackstone Effect" from its EOP acquisition) under the theory that you are buying the property for its future value based on the assumption of continuously rising rents. I call that kind of thinking risky, except maybe in the scarcest markets (Manhattan, maybe downtown SF, central London, etc.) and perhaps even there to boot. In the 1990s everyone thought rents would never go down and that demand would always exceed supply. El-wrongo. Now this is a completely different market from fifteen years ago, but as Santayana wrote (a phrase that, alas, Jim Jones co-opted in his tragic camp in Jonestown), "Those who cannot remember the past are condemned to repeat it."

It is no secret that I love seeing old buildings restored. You just have to look at the picture of my office on the left to confirm it. So I was happy to hear that Prime Group has not only refinanced the Roanoke Building at 11 S. LaSalle Street, a building that I've visited more than once in my day, but also that they are planning to restore the building, apply for landmark status (and the tax breaks that go with it) and even make operational a bell tower that I honestly did not know about.

David Bodamer has not one but two posts about REIT funds and commercial mortgage REITs taking heavy hits. (By the way, if you like it here [and I know this sounds like a shameless, toadying plug and I don't mean it to be], you have to bookmark or link to David's blog. He's on my must-read list, and should be on yours if you care about commercial real estate.) How low can they go? The investors can only take so much pain. And is this and the rest of what we have been seeing panic-driven, contagion-driven, both, neither...or are there other factors out there? The other thing I want to know is how the real estate-driven private equity players are doing. I don't mean the big boys you read about in the paper; I mean the bread and butter people you only know about from being in the biz. If anyone, they might be okay so long as they have stuck to their general investment guidelines for doing deals. I know some are delving into development work because that is where t

Here's an interesting interview with Neil Lawson, joint head of real estate investment banking at Eurohypo. Granted, he was talking more about European markets than here, but we're in a global economy now, so I think his views are important on a more macro basis. His take on what is going on? The near and mid term impact of the market may be bumpy and have some turmoil, especially with respect to highly-levered properties. But he also sees this crunch as different than the 1990s real estate crash, which was caused by worldwide overbuilding. We don't have that problem here. He also thinks that the feeding frenzy will slow down and that interest rates are at or near their peaks. Hopefully he's right.

I have a GREAT deal toy in my office. It is a bottle of Pepto - Bismol . It has an inscription: "Remind Me Again Why We're Doing a Conduit Loan Elixir." It is a reminder of the wringer a group of us went through doing a conduit loan for a regional mall some years ago. Why do people do this type of deal? You can, if the rates are right, save a bunch of money compared to traditional financing, and do much bigger deals as a rule. (By the way, if you want to learn more about or more fully understand the nature of conduit loans and CMBS , try clicking here . This is at least a good start.) Remember, because the holders of the CMBS bonds are expecting to clip coupons for the life of your loan, you can't prepay the deal. So, if you want to get rid of the loan for any reason (for instance, a sale), you have but two options. And the only things I can think of that are more painful than doing a conduit loan are (1) transferring that loan to a subsequent purchaser or (

Now it is Taco Bell and 36,000 sf of spec retail, with a dozen outlots to go. Although I'll probably never go there, this could be a nice little project when done. Maybe it ought to be with the breaks it gets. At first I did not understand why someone would put a retail project at the south end of Kankakee, which, despite protestations to the contrary, is not the center of growth where I live. (Even the Chamber of Commerce moved to Bourbonnais, for Pete's sake.) But now I get it. You attract some locals but you also get regional activity for probably 35 miles south, and these people have money and buy, buy, buy. Super Wal-Mart just has that kind of power, regardless of the fact that today it did not make its numbers and lowered its guidance for the rest of the year.

The news rumored for months -- and announced previously to employees -- is true: Macy's is closing the old Marshall Field warehouse location at Diversey and Pulaski in Chicago, moving the warehouse to Minooka and moving its famous furniture clearance center to a location near Fox Valley Mall in Aurora. This is the right move for Macy's, which is admittedly not one of my favorite companies because of the Marshall Field naming debacle. Because of its location, Minooka has great distribution capabilities, and a modern facility has to be more efficient than the old lady on the north side, which is a building of over 1.5 million sf on six levels. I doubt many of the current staff is going to want to commute to Minooka unless they already live south, so most of the the 350 staff might be looking for new jobs instead of applying for the 210 jobs the new warehouse will generate. Anyone who has been to the old warehouse, however (perhaps at the six or so sales a year they had), has

I observed back in May that there might be some significant changes on Chicago's Michigan Avenue because of the loss of Lord & Taylor and Virgin Megastore and Best Buy's termination of lease negotiations at the star-crossed 700 N. Michigan. Well, the changes are a'comin', and they appear to be roots-based. Yes, it is back to fashion and accessories , and let's face it: that is what made Michigan Avenue famous, just as it did Fifth Avenue and Rodeo Drive (no matter how much rent the Apples and Sonys of the world want to pay). Potential new tenants include two Ralph Lauren concepts and Zara. Much as I am an electronics and gadgets junkie, that is what malls are for. Give me clothes when I am shopping up and down the avenue.

Here's a Reuters story analyzing the current state of the CMBS market . As we've discussed before, it says that in spite of internal strength in the market, borrowing costs are up, lenders are having a harder time selling the bonds from which the loans are made, equity requirements are up, meaning that mezz loans are starting to come back into vogue for highly-levered deals. Other than the fact that lenders are having some trouble pricing loans, I guess I don't see the "woe," unless I represent a client that bought a property at a 4 cap who is trying to flip it. The CMBS spreads have been crazy low for a long time, and the freewheeling nature of some of the lending had to end sometime. Maybe I am naive, but what I am seeing here is largely a return to the status quo ante of, say, seven years ago. And I still say that is generally not a bad thing. The price corrections should be temporary so long as rents continue to rise and vacancies continue to decline. S

Sorry, all you folks in the Show Me State, but Westfield made a great move in my opinion by dumping four malls in St. Louis and buying two in Florida . I am personally not the biggest fan of Florida (the humidity just kills me), but it is the fourth largest state now and poised to grow even more. St. Louis? As Borat says, not so much. (Don't get me wrong, it is a nice town, the presence of the Cardinals notwithstanding.) Westfield appears to trying to consolidate its holdings in certain growth markets, perhaps with an emphasis on the Sun Belt. So what about Chicago, which is definitely not Sun Belt? One could point to the fact the the Shops at North Bridge is on the market , but let's not forget that (a) Westfield only owns one-third of it together with John Buck Co. and Morgan Stanley and may or may not be selling its stake (my guess is that it will try to stay put), and (b) Westfield owns five other malls in the area: Hawthorn, Old Orchard, Fox Valley, Chicago Ridge and

The anonymous Atlanta associate, The Snark, has written a very clever and witty post on fire drills at law firms when corporate deals blow up (free sub. required). You might say, "How can there be real estate fire drills? The land (or the building, etc. etc.) is not going anywhere." Trust me, there are. Just because the real estate is not there does not mean that there are possible penalties or defaults for not closing on time, or other backup deals waiting for you to mess up, or lenders deciding to draw a line in the sand, or interest rate commitments expiring, or 1031 tax-deferred exchange deadlines arriving. I've been through more fire drills than I can count. At first they are stressful and even a little scary. Then they become fun and interesting and maybe even -- to the extent it is possible -- exciting. But with time, and especially if you go from one fire drill to the next with little or no break, they become tedious, mind-numbing and question whether you s

Here's the link . I think we've all felt it, and I know retail activity is good, but it is nice to see the raw data. Granted, we're not LA with 5.6% cap rates and sale prices approaching $300/sf, but if you compare the median sale prices here to markets such as Atlanta and South Florida where numbers are higher, you have to at least think about room for price increases here down the road. Maybe there is more scarcity there or maybe the sheer volume here makes the difference. I just know it is very interesting and bodes well for more transactions down the road.

I am working on a project with Structured Development, LLC at Blackhawk and Halsted Streets in Chicago that is seeking a green building , or LEED ( Leadership in Energy and Environmental Design) , certification from the US Green Building Council. I have been trying to learn about how one goes about obtaining a LEED certification. As I understand it, you have to earn "points" based on about a zillion factors, including proximity to mass transit, green roofs, energy-efficient design and so on. If you want to learn more, read about it with me at this site . I find it all quite interesting and I hope to write more about this in the future.

I know I sound like Father Guido Sarducci again (see here if you don't know what I mean). And this come just after I laughed about predicted $400-500 hotel rates in Chicago in a few years (yes, I still laugh at it, BTW). But when global buyers outnumber sellers by 4 to 1 that is a fairly decent indicator that purchase and sale prices in this red-hot market sector will continue rising. Case in point: Bud Cataldo and Roy Disney's family recently flipped the Amalfi Hotel at a 12% profit in just seven months of ownership. Nice work if you can get it. And the profit could be higher depending on what costs were allocated to intangibles (the profit is based only on values culled from the public records). And if you do the research, you will find this is not an isolated transaction. There was at least one other similar flip in River North last year, IIRC.

Although I'm glad not to be working on them right now, I will admit that all the multi-billion dollar deals that popped up in the last couple years have captivated me. Notwithstanding my most recent post on research in the market, the new big question of the day is whether the delay in the Tishman/Lehman acquisition of Archstone is a signal event. My take: Perhaps it is, for megadeals and crazy cap rates, but not for the market in general. Okay, these guys may be encountering more resistance than a few months ago in raising $17.1 billion in debt (gee, imagine that -- what is the world coming to?) or lining up some flips to cut the risk. Nor is this necessarily even a bad deal in my opinion. It just means people are not treating deals like Monopoly money right now, and that is a VERY good thing. A delay does not change the fact that there is SO much money in the market for sensible plays. I know that players are looking to make acquisitions, but only if the conditions are rig

The Retail Traffic Court Blog has a good post about the current debt market climate in commercial real estate. David Bodamer found a report from Torto Wheaton Research (an independent research firm owned by CB Richard Ellis), and TWR opines that because fundamentals are good there should not be much contagion into the commercial market, with perhaps the most slowdown in retail (because of the subprime mess) and lower quality properties. Again, the cash or mostly cash buyer is going to look good to sellers. So for now, we should look at this as a cold and ride it out.

Whole Foods is getting into the act of building smaller stores or decreasing the size of existing stores, following the trend of Best Buy and Circuit City discussed here previously . This is not at all surprising, though the reason here may be different. You don't buy groceries as much of the Web as you do electronics, but efficient supply chains and smaller demographic markets are good reasons to move this trend in to the grocery realm. The only bad things I see here are: (a) I like large grocery stores myself because of the perception (if not the reality) that you can find more varied product, and (b) developers have to find more tenants to fill space, but that might be at higher rents than you can charge a big box anyway.

I have no idea how many regional-size shopping malls in the US have churches or church services. I doubt it is many, for so many reasons. But in the Philippines, specifically Manila, mall operators need to plan for space so priests can celebrate Sunday mass. A largely Catholic nation (85%, IIRC), when I last visited Manila I was flabbergasted when I went to the mall and saw Mass being celebrated in the middle of the courtyard! No, church was not held in a vacant storefront (I hardly remember seeing any vacancies)...it was right between stores and you were asked to be relatively quiet while walking by. I was reminded of this by a recent story I read where Manila Archbishop Gaudencio Cardinal Rosales requested that Mass " be held in the establishments’ chapels or in decent places, even “in a quiet corner” where people could actively participate. " Remember however that trips to the mall in the Philippines are practically a national pastime. Now developers, who are building

I wonder how many lawyers think they really know the business of their clients, and how many really do know that business. I like to think I know the business end of real estate to get by and then some, but I also know there is always plenty to learn. So I try to take time from my schedule to attend business-side meetings when my clients don't mind my doing so. Of course, I don't charge for my time, because I consider it a good education for myself and a way I can add value for my clients down the road. (While clients are usually happy to have me there in any event, it is even more appreciated when they know the meter is not running.) One of my clients was good enough to let me sit in on a two-hour development meeting yesterday, and it did confirm that the learning curve on the business side of real estate is almost continuous, especially in this field. I learned plenty about pending deals and changing strategies, and I know it will pay off down the road when I have to jum

I wrote previously about a great new project being undertaken at 200 N. Riverside Plaza, a stone's throw from my Chicago office. The Tribune reports this afternoon that William Blair & Co., the local financial services firm for well-heeled folks, is taking 350,000 sf (or 35%) of the building, presumably on a long term lease with rents at $45-50/sf (which I imagine includes a nice tenant improvement allowance for the initial buildout. This means the building is almost certainly a go. The fact that the venture is apparently being backed by pension funds is also helpful because it makes the project largely immune to tightening in the credit markets. I'm looking forward to seeing this project come online, albeit probably in four years or so.

CMBS defaults might be on the rise from historic lows , but commercial real estate loan foreclosures, at least in California, are at a five-year low because of high demand. We're talking only .03%? What does that translate to -- a strip center in Visalia and a self-storage in El Centro? That low number boggles my mind. But it certainly is not bad news for property owners in California.

Today's Journal had yet another story about increasing spreads and borrowing costs in the CMBS market . An estimated 30 bp hike in two weeks is nothing to sneeze at. Even AAA rated bonds are jumping, probably because people are flocking there to avoid taking on riskier deals right now. Face it: some investors are spooked. And predictions are that highly-leveraged loans may get priced out of the market in the short term. For those of you investors out there that have the tons of cash to buy property and then leverage it down the road, or those who can do deals with a lower LTV, then I think you'll be in a good position to pick up some deals in the near future. Buy now, hold the property and then lever it later when credit loosens again. And it will loosen, sooner rather than later in my humble opinion. Of course, this means not buying property at a 5 cap, as your IRR on an all cash deal might not be as attractive as you want, depending on your investment strategy and goa

This is a trend we'll see even more of as additional office space comes online and older space becomes functionally obsolete or just can't be leased. Perhaps my favorite project in Chicago is 55 E. Monroe , because people I know of (Walton Street Capital and Glenstar Properties) are doing it and because I used to work at the building. The syndicated construction and mezz loans (still making this a highly leveraged deal) have closed and I gather the conversion should start soon. Only the higher, view-protected floors are being converted, and again, while there is a glut of condos on the market, this building screams location location location. If you have anything but the purest west view, the scenery is spectacular, and, because of where the building is, that view is going nowhere. And the area itself, right off Michigan near Millennium Park, is hot. I will be interested to see how they handle the ~45,000 sf floorplates with condos and the interesting shape of the building