The Dirt Lawyer's Blog Archive

Here's a thought-provoking story nonetheless about a housing slump meaning that state and local government will have less revenue because of, among other things, declining home values. While I would love to see a decline in my property taxes (they went up by, IIRC, 3% this year), let's just say I am not holding my breath. I also have to remember that our local high school district wants to tack on an extra grand to build a new school. Yeah, right.

You read that right , and by no small number either. Vacancies dropped by 0.6% in the last quarter and demand improved to boot. Now, before you get too excited, let's remember that portions of two big buildings went off the market due to pending hotel conversions, and that more space is coming on line in 2009. So, while this is welcome news, it may be a bit artificial. But if it isn't....

An interesting (possible) incongruity I am finding: Half of GCs surveyed are planning to do more work in house and cut back on law firm usage (one big reason -- the cost of hiring BigLaw firms to do less than bet-the-company work). Yet, notwithstanding this, smaller firms that could perhaps compete on this front are still merging into BigLaw. On the heels of Welsh & Katz (a fine IP firm) announcing its merger with Husch Blackwell Sanders (itself a recent merger!), now we have the first-rate mid-sized Schwartz Cooper dissolving , with almost all of its lawyers moving to Detroit-based Dykema. In turn, Dykema got its start in Chicago in 2004 by merging with Rooks Pitts, also a well-known mid-sized firm. So, is this economies of scale? A fear that you have to grow to compete? How will clients react? Schwartz Cooper was well-known for its work for LaSalle Bank (now B of A); did that play into it as well? I'm going to have to make a phone call or two. One last thought: just a

This is for a good and smart cause in a day and age of $4.00+ gas. GlobeSt.com reports that, at the Transwestern/Real Estate Forum Twelfth Institutional Investor Symposium, the hot topic was mixed-use, in-fill projects near mass transit. That was news to me, because I just assumed everyone's been doing this for years. Obviously I cannot take the credit, but I remember doing these deals very early in my career. So, you current and former clients of mine doing this cutting edge work, congratulations! You were a decade or so ahead of the game.

With perhaps one exception, my blog links are only for real estate related websites. I made that decision intentionally. But that does not mean I don't have other faves of my own that are not part of the legal or dirt worlds. And here they are: 1. Opera Chic : As a musician (former professional, now a dedicated amateur), I like reading about the music biz. And Opera Chic is as good as it gets. OC knows her stuff and is not afraid to tell it like it is. There are great stories, videos, and pictures of all things opera and classical music, with a particular emphasis on La Scala. OC is perhaps the Howard Cosell of the music biz (and I mean that in a good sense). I also like going to myauditions.com once in a while. 2. Piled High and Deeper : techinically speaking this is not a blog. But Jorge Cham writes some of the funniest material you can imagine about the bizarre world of academia. (I am a former Ph.D. student, so maybe that is why it makes me laugh so much.) 3. S

If I were still working at a law firm, I would demand to be able to work at home whenever I could. Why? Energy prices and recaptured hours. The main reason I created my own gig was because I needed that flexibility. A 120 mile commute was not working for me. But what if, instead of 1-2% of people working from home, that number went up to 10-20%? What would happen to the commercial real estate market? That's one of the thought-provoking questions in this post by Lisa Michelle Galley . I have two observations: First, prices would take a dip for sure. Supply -- demand, blah, blah, blah. But then developers would stop building until demand caught up with supply. So there's an additional lag and no new construction for a bunch of years. People in Chicago know all about that -- how many years did we go without a new high rise? Second, not everyone can do this. Certainly my wife as to go to the office and the hospital and people have to come to her (although when I was a kid

That's what this GlobeSt.com report states : The are widespread fears that if rating agencies develop a separate category for structured securities it will further erode investor confidence in CMBS and RMBS and delay these markets’ return. Apparently the SEC wants to bring some transparency to the market, which I think is a good thing. And if that means it takes a while for the conduit market to come back, then so be it. I was personally having little faith in some of the rating agencies' work on deals, especially when things were hot and heavy. That being said, however, this could bode poorly (and improperly so, perhaps) for structured finance vis-a-vis other rated securities: Separate ratings [according to Jan Sternin, and SVP at the MBA] would lead to the perception in the marketplace that corporates and munis have an even higher level of insulation against loss -- and that structured finance may be even more prone to loss. "It would render all AAAs not created e

Why do I love technology? Because the weather could not be more perfect today here in Bourbonnais (in other words, an average day in San Diego or Santa Barbara). And, it is my wife's day off. SO, that means my emails and work calls will come in on the Blackberry while we run errands, go to the golf course and otherwise find ways to enjoy the glorious weather. That being said, here are some quick thoughts for the day: JLL's paying $613 million for Staubach in a down market with fears that tenant rep services will not be as in demand as in past years. I still think it is a good bet. Staubach is a primo brand in the industry. It is hard to put a tag on that price. Plus, the net present value of the deal is apparently only $317 million. Recourse loans? We're going back to recourse loans? Good grief, that's scary. We all know about the Macklowe guaranty on his risky bridge loan, but I've been hearing about at least partial recourse quietly on some deals, espe

'I don't trust you guys'

Construction loans, as we all know, can be very risky. That is even more so in a softer market. Condos and single family residential appear to be the big, big culprit here (13.6% and 10.8% respectively), but even commercial deals have risen, albeit from a really low 2.2% to 3.6%. Here the Crain's story by Eddie Baeb. I don't know if Eddie is Corfman's protege but he's doing a nice job writing about our market. (Full Disclosure Department: he has written complimentary things in the past about some clients.) Why the discrepancy? Again, I go back to Father Guido Sarducci's Five Minute University . Supply -- demand. Next subject. Single family and condo product overbuilt, big time. And some developers got into product they now admit was wrong. KB Homes building mini-mansions is a great example of this. They are finding their way again. Others won't be so lucky. Generally speaking, commercial product does not suffer from the same phenomenon. As I'

We've been reading plenty about Lehman Brothers lately, and here's the latest on losses and reductions in exposure to the RE market. I've had deals long ago with Lehman and its affiliates, and they have been major players in the market for some time, both as JV money partner investors and in the conduit market. Does the 20% reduction in its exposure mean that its real estate group is shut down from doing new deals, or can it take a run at good opportunities? If the latter is true then the adjustment is more of a normal portfolio balancing, but if they are shut out from new deals then that means a major source of dealmaking is on the sidelines indefinitely and that is a little troublesome.

The LLC turned 20 recently, and Larry Ribstein has a first-rate post on the topic. My thoughts on his thoughts are: 1. The series LLC may not be arcane, technically speaking, but I don't think it is the kind of product I would be advising the average dirt client to get into in order to save money. I'm concerned about lenders balking at dealing with them, and there is utterly no case law on veil piercing. I've been telling my clients to stay away from this vehicle, at least for now. 2. Larry also writes: Finally, there was some discussion in the last panel session about the future of LLCs. The big question is whether abuses of the LLC form might kill the goose that has been laying the golden eggs of flexibility for 20 years. I have expressed my own concerns about abuse of the LLC (see my paper on Reverse Limited Liability ). Great point. LLCs do get abus ed. There was also a good article I read over the weekend by Lin Hanson (whom I mentioned here the other day) titl

I always get a little concerned when my clients decide to send notices under contracts without consulting me. And, thanks to Peter Olson , here's why: Here's the recent case ( Genesco v. 33 North LaSalle Partners , No. 1-07-2782 ) where simply a tenant didn't follow the lease's Notice provisions and therefore the tenant DID NOT properly terminate the lease. The case gets a bit complex with various equitable arguments but the basic fact was simple: tenant sent lease termination to the wrong address. So instead of a $30k lease termination fee they're on the hook for the rest of an approx. $1 million lease (high-end Loop property). Oops. Imagine if you were a lawyer consulted on this and you blew it. Call your carrier now. Bottom line? Don't take a notice clause for granted, because if litigation ensues this is were it can end up.

When the amateurs and the moms and pops start investing in something, start doing the opposite. Case in point" everyone and their mother speculating in Florida and Las Vegas and Arizona residential property...sign of the apocalypse. Your next door neighbor who knows as much about dirt as the rabbit in the back yard builds a strip mall. The early birds will do fine, but once it becomes prevalent, run -- don't walk -- the other way. And get some pros involved, for crying out loud. I read that disgraced ex-NY gov Eliot Spitzer is about to start a vulture fund for real estate. (Maybe I should apply to be a prosecutor.) Hopefully he gets some talented dirt pros behind him, because it isn't that easy to do. Maybe he'll look for money from other johns.

If you've said that or heard that or even thought that, then read this . What a great 1L Property question that story would be. For those of you of don't want to read it, the story is one of a home being built on someone else's property eleven years ago. It is more complex than that, so do go take a look. And think of this the next time you even dream of doing a real estate deal without a lawyer, a survey or title insurance to cover your behind. BTW, the dean of the ucla Law School agrees . (Thanks to Lin Hanson , an outstanding senior member of the bar who goes out of his way to help his fellow attorneys on a listserv to which I subscribe, for pointing this one out.)

Generally speaking, this is when you take a skyscraper and carve it up into separate legal properties so you can have different owners of a building if you wanted. Of course, this is exceptionally complicated (plenty of legal fees!), but the rewards can make it worthwhile. The John Hancock Center in Chicago has already been legally subdivided into retail, office and condominium portions, but we'll use that as an example since Golub & Company (part of the JV that owns the building) has announced that they are going to sell off the retail portions of the building, consisting of floors 1, 2 and the plaza and floors 94, 95 and 96. I guess they'll keep the office, which is what those guys know best. As the story says, this is very creative. Other buildings on Boul Mich have the same structure, sometimes for legal reasons but other times also to separate the retail and office portions of a property for property tax purposes. Why? Because if in a net lease a tenant pays it

I'm not going to get into a political screed here, or at least I'll try not to do so. I'm not even sure whether this is political as much as it is good business sense and patriotic, too. But I', becoming more and more convinced that we need to fight another war, one that impacts dirt as much as our daily lives: a war on foreign oil. I'm disgusted to read that we spend upwards of a trillion dollars a year and give it to people like Hugo Chavez, supporters of bin Laden and other assorted bad actors in the world. There's a green thing about it too, but that's secondary to me. And thanks to one of the smartest people I know, I've been thinking about green issues since, oh, 1991 . If we stop giving money to the bozoids, we cut off their money and maybe help the world to boot. What about nuclear power, oil shale, biofuels, processing waste into energy, solar, wind, geothermal, and so on. We need to go to war with tax incentives, technological incentives

A couple of months ago we noted that Shorenstein Properties was now a buyer . And they meant it. Yesterday the WSJ reported that Shorenstein is buying two of the properties DB took back from Harry Macklowe, and at a 20-30% discount from Macklowe's price. The story also reports that Paramount is buying a third building, presumably at the same discount. Does this mean other buildings are going to tank similarly? Probably not. Most analysts were saying that Macklowe overpaid for his chunk of the old Zell/EOP empire, and the credit market agreed by not bailing Macklowe out when his loans came a-callin'. We need more empirical evidence -- meaning more deals -- before the real correction can be ascertained. The smart money has been on 15%, and I'm not inclined to disagree.

I'm kidding, of course. But hey, the CTA station at Block 37 will now cost more than $320 million , way up from the $213 million budgeted. I think that's half of what Soldier Field (or the once-landmarked monstrosity on Lake Shore Drive with that name) was, and who knows how much less than Millennium Park? Wasn't that $600 million, too, or more? So, the city will find more TIF funds to help pay for it. And wait! That's not to finish the station. Get this: But people familiar with the matter say the new subsidies will cover only costs already incurred. Until even more money is found, those people say, the semi-completed station will be mothballed, much like an unfinished basement in a home whose owner has poured the concrete but can't afford to install carpeting, paneling and other finishing touches. Unbelievable. Oh, wait, this is Chicago, where budgets are only very rough estimates. Seriously, if I were a developer, can you imagine what my money partner

It's funny. I always assumed that, by this time in my life I would be involved heavily in the political process. But, other than my non-partisan position as a government official and enjoying reading about and watching the world, I'm not involved. And I expect I'll be staying that way. I had the chance to see the Illinois legislature in (in)action on May 31 (yes, a Saturday -- the last day a budget can be passed without requiring a super-majority and it reminded me of how much politics and how little statesmanship is involved in government these days. Now I read in The Economist that Congress is holding up not just judicial appointments but nominees for the Board of Governors of the Federal Reserve. Why? No one doubts Mr Bush's candidates are qualified. The hold-up is ideological. Democrats want to wait until after November's election so that a new president can, as one senator put it, “remake the Fed” by appointing a clutch of new people at once. That is r

You're stunningly beautiful and very smart and obviously know our biz, but I don't think you don't know the territory. Crain's moved a story stating that, according to Trump, "some of Oak Street’s high-end businesses are interested in the retail space planned for Trump International Hotel & Tower....Dressed in a wine-colored cut-down-to-there cocktail dress (similar to the one at the right?), Ms. Trump spoke to reporters before schmoozing with a crowd of 200 guests gathered for a cocktail party Thursday night on the tower’s 16th floor. " But, as the story says, "a few Oak Street retailers are calling such talk a public relations ploy. Why leave millionaire’s row just off the Mag Mile for an unknown spot on the river, they ask." Bingo. Can't see people leaving the Gold Coast because there's one building down on Wabash that has some high-rent rooms and condos. Just my humble opinion, of course. (I'm sure Trump would counter by s

That's a title of an op-ed in yesterday's WSJ. Let me say from the outset that its author, Amity Shlaes , rocks. Her recent book, "The Forgotten Man: A New History of the Great Depression," was superb. She said what needed to be said: that FDR's policies prolonged the Great Depression. One of the worst policies was created 75 years ago yesterday: the abolition of the "gold clause." This was an inflation-hedging clause in old, old leases that could force a tenant to pay in gold. The vestiges of the gold clause can be found today in leases that increase rent by the rise in the CPI. When people lost their inflation hedges thanks to a careless disregard for property rights, chaos ensued and interest rates predictably rose. Some ancient long term ground leases may still have these clauses in them. Some years ago I encountered one, and argued that the gold clause (which has been reinstated for new obligations arising after 1977) had been reinstated by a

I do not really spend much time talking about residential here, but a post by Doug Cornelius really interested me today. The interactive maps, complied by the Fed in Boston, show lots of foreclosures going on in 2007 in Massachusetts. But compare that activity to the crunch of 1992! There's no comparison. Things were WAY worse fifteen years ago. I know this is only data from one state. But it sure makes you wonder if this "crisis" is all blown out of proportion because it is a break in a long, long run up in the market. Is it media hype? Politics? Or are things that bad?

I used to know more about this subject, but since leaving California in 1996 I don't follow it much. But I did read that California voters yesterday passed one ballot initiative restricting takings on single-family owner-occupied homes, while rejecting a more sweeping proposition that would also have barred the taking of non-residential property for private use and phased out rent control. The libertarian (small "l') in me would probably have voted for Proposition 98, the one that failed. I am still disgusted by cases like Kelo that give government such sweeping powers over private property when the land will be handed over for another private user. Perhaps Jeff Brown or some of you other Californians can edumacate me on the goings-on?

I have been an unabashed fan of the Chicago Spire project. And the Tribune reports today that 30% of the condos are sold. They made a point of saying these were sales, not refundable deposits. Now, I have not seen the contract to see what, if any, outs there are, but I'd bet there are close to none. 30% is a traditional benchmark for a construction loan, but, as the story intimates, I would not be surprised if lenders want to see a higher threshold met. It may (or may not, in this market) depend on the LTV, or how much coin Garrett Kelleher brings to the table. And since he's funding it himself we know he has the desire and wherewithal to do it. The international marketing (with exhibitions in Dublin, Singapore, Hong Kong, Beijing, Shanghai, Johannesburg and New York, not to mention the ads I see in the WSJ all the time) may have paid off. It was a sound strategy given market conditions here. P.S. If you want to see construction pics click here . What a great site Sky

I had to chuckle at this story on arbitration in today's WSJ . Most franchise contracts once called for mandatory arbitration of issues, rather than going to court. But these days there is growing pressure -- from franchisees, judges, Congress and even some franchisers -- to rethink that longstanding arrangement. "The trend toward arbitration has pretty much ended," says Peter Lagarias, a franchisees' attorney in San Rafael, Calif. Among the concerns is that there is no guaranteed right of appeal. "You have to take what the arbitrator decides," says Joshua Becker, an in-house counsel for fast-food franchiser Kahala Corp. For that reason, he says, Kahala, whose brands include Blimpie submarine sandwiches and TacoTime, favors resolving issues with franchisees in court. Why am I laughing? Because my friend Charlie Berwanger (whose firm, I just noticed, recently opened a Chicago office) and I wrote an article titled "Arbitration in the 1990s - Absolute

The SEC has closed its investigation of Triple Net Properties (it merged, as you may recall with Grubb & Ellis last year, and Tony Thompson, the founder of Triple Net, went off to start his own new company ) without taking any enforcement action. I'm really glad to hear this. Without naming names, I was in the past a little worried sometimes about some of the players in this field. I remember one deal where the buyer was literally taking little old ladies to look at a shopping mall being acquired in a NNN deal and levered to the hilt. I wondered aloud whether this was an appropriate investment vehicle for them. Yes, it was not my client.

So, where are we today? Jordan Crouch wisely tells us : Short term rates will remain near the current levels because the FED cannot raise interest rates yet and risk slowing the economy. As the economy does improve, macro investors will move their investments from the longer term T-bills into other more attractive assets. With more investors selling their T-bills, the price will lower sending the corresponding T-Bill rate higher. This all makes sense. And with CMBS down to a trickle (from $78.5B to $10.8 B in the first four months of 2007 compared to 2008, and a recent prediction of but $35 billion for the whole year), it is understandable. Here's another take from NREI (courtesy of Traffic Court ): The market for commercial mortgage-backed securities (CMBS) will begin to recover when issuers and bond buyers agree on pricing, probably late this year or early in 2009, observers say. Once that begins to happen, however, a potential flood of pent-up trading could plunge the market

You end up working twice as hard when you get back. Some random Monday thoughts: Lisa Michelle Galley has some thoughtful comments on green lending in a post from yesterday . (P.S. -- Lisa, I agree with you --- seems like underwriting spin to me.) Calgary -- yes, Calgary??? has the second most expensive office space in North America according to CBRE. (Courtesy of Deal Junkie.) Four major title companies are being hit with class action lawsuits alleging they are "charging customers for services performed by other companies involved in the residential real estate settlement process." (Note that River West's underwriter, LandAmerica , is not a party.) Big shopping centers in Will County (including some I believe I've written about here before) are being delayed due to economic conditions. While I was gone I missed this excellent interview with Barry Sternlicht. No more shopping at Sharper Image, at least not the brick-and-mortar version. All of the 86 remaini