The Dirt Lawyer's Blog Archive

Remember the market after 9/11? Deals could not get done in large part because of terrorism insurance. Actually, it was the lack of terrorism insurance. Insurers did not want to write the risk, and lenders did not want to lend. For months I sat on my hands with large deals waiting to close. Then the government stepped in, backstopped the policies and risk and we suddenly moved like crazy people doing deals. I think if I were the president I would throw the bankers in a room and say, "Okay. You have hundreds of billions of our money. And you are still hoarding it and buying banks and, with some notable exceptions, not lending in the volumes we want. That ends today. Using even semi-reasonable underwriting guidelines, if you lend more than X dollars (numbers people can give each bank the number), we will backstop all your loans. All of them. If you do not, then you are on your own. Period. No TARP money, no cash, no backstop -- nothing. And we in many cases are your larges

That's right. The world's eighth largest economy is out of money and cannot pay its bills: Facing a $42 billion budget deficit, State Controller John Chiang told the Sacramento Bee he has already borrowed $21.5 billion to try to cover the state's checks, but by Feb. 1, there will be no more options left but to simply stop paying some of the bills – including tax refunds, welfare checks, student grants and other payments owned to California citizens. So, if you are owed money, you get an IOU. That's right. An IOU. I don't have much ground info yet on how Californians are feeling, other than perhaps that they want bailout money now. (And no, Chapter 9 does not apply to states, or at least I don't think it does. I am a dirt lawyer, not a BK guru.) Of course, one solution is ugly: raise taxes, especially property taxes. You have a Proposition 13 problem there of course, but I have always been a bit confounded by the fairness of Prop. 13. You can have two pe

They say the best time to start a business is in a down economy. For personal reasons I hope this is right. And so does Carlson Hotels, which, according to this story , plans to add 300 more properties to its portfolio through 2013. A cynic could say that since they opened 89 new places in 2008 this is a slower expansion, but any good news is great these days. And with more travelers going to brands like those Carlson sells, expanding in a down time (when costs may also be lower) may make financial sense. Lawyers' jobs could be easier since some people are just happy to sell or have work or provide services, regardless of the legal terms. It makes sense for other reasons, too. We ALL know this is a cycle, and it takes a lot of time to bring something new online. So even if RevPAR is down a predicted 9.8% you have to be ready for the bounceback. Even in the face of bad news you have to be ready for the good news or get caught with your feet flat. I'm sure others are thinking

While I have some projects I am working on, things are admittedly quieter than normal right now. Some of this is because it is January, which is usually a slow month. Some of it, however, is because of the economy. Many players still seem to be in a wait-and-see mode, and they are not bashful about. Another reason is capital, as some lenders are cutting back on deal flow , TARP money notwithstanding. (Kudos, however, to U.S. Bancorp , SunTrust Banks Inc. and BB&T Corp. for taking TARP money and upping lending activity.) But I know I am not alone. My colleagues in the CRE blogosphere are not posting as much either . One exception is in retail where David Bodamer is chronicling the job cuts, store closures and liquidations. The latest is at Home Depot, which among other whackings is shuttering its Expo concept . I'll admit this: I used to shop there a lot but never bought a thing because I ould find it cheaper elsewhere. Those big boxes should interesting to deal

I received a great email a few minutes ago from Private Equity Real Estate about President Obama's inaugural speech, likening it to a general partner speaking to limited partners. Rather than try to do its justice in a summary, I repeat the content of the post in its entirety: The words of US President Barack Obama this week during his inauguration speech might just as well have been said by a GP to his LPs during an annual investor meeting. Here we present an abridged version, with our translations. I stand here today humbled by the task before us, grateful for the trust you have bestowed. [Thanks for re-upping] At these moments, we have carried on not simply because of skill or vision . but because we have remained . true to our founding documents. [No style drift here, thanks very much] That we are in the midst of crisis is now well understood. [It took us by surprise too] Today I say to you that the challenges we face are real. They are serious and they are

From Globest.com : With the presidential inauguration less than 24-hours past, the real estate community is already seeking out signs on the direction President Barack Obama will take TARP. One likely development that will be welcome to CRE is a greater focus on accountability for banks that choose to tap the billion-dollar-plus program. Specifically, banks that participate will be required to account for the money at a more granular level. Let's hope so. Money flowing is what will work, in my humble opinion. If banks are "stabilized," as the story says (yesterday's plunge notwithstanding), then let's solve the real problem. No going back to cowboy lending, of course, but let's make the rational deals happen. If you want our money, do something other than hoard it.

There is a very interesting story in today's WSJ that explains the incredible complexity of huge, multi-site deals, foreclosures and various investors in CMBS. This story is about the John Hancock Tower (in Boston, not the iconic Chicago building). The tower was part of a seven site deal of a fund of Broadway Real Estate Partners two years ago. The deal's now in default, according to the story. Back in the old days, when a deal went south, you had one lender, or maybe a syndicate of lenders with interests that were usually somewhat aligned. And you sat at a table, did conference calls or ever wrote letters back and forth working out the loan, or you proceeded to foreclosure. Not so anymore, thanks to the complexity of CMBS. If you are a regular reader or know the business, then you are aware that CMBS has various tranches of debt, with senior tranches having the least risk (and lower return) and junior tranches having more risk but higher interest rates. The same is true

Here's a classic from the local paper where I live. The new owners of Jackson's Pet Shop in Bradley, Misty Henrichs and Ryne Walker, say they're just renters and therefore not required to repair or replace the industrial appliance. Landlord Mark Feyman, of Glenview, on the other hand, insists the owners are occupying his building illegally and have refused to sign a lease with him so he won't fix the furnace until they sign a contract or move out. I obviously haven't read the documents or called Jeff Bennett or the landlord's local lawyer, but based on the story and the comments therein, I think I can reasonably discern the following. The lease? Triple net. That means if the furnace goes, the tenant pays for it. And there appears to be an assignment/sublet clause that, if well drafted, means in the event of the sale of the business the landlord has to consent to the assignment of the lease. (I don't know if Ms. Henrichs and Mr. Walker purchased the com

I know no one is shocked that CC is calling it quits . I can't remember the last time I walked in one. The bleeding never stopped and unless there's a last minute white knight the liquidation begins tomorrow, and 30,000 people will be unemployed. Sad. The dirt is often a significant factor in what kills these companies. As today's Journal states , Retail experts have cited the 2005 overhaul of the U.S. bankruptcy code as one reason so many chains are closing their doors. One such change shortened the period in which a retailer may accept or reject store leases. Retailers used to get a year or more to make those decisions. Now they are given 210 days. Once they accept a lease, the landlord then has an administrative claim against the bankrupt company. On the flip side, though, landlords get hosed waiting and waiting for retailers to decide whether to accept or reject. So who's next?

Business Week's Hot Property blog has a good post today about a CRE bailout. And perhaps we should all stop calling it that. The NAIOP's proposal is: loan guarantees from Treasury and the FDIC. And they point out this is not unlike 2001-2002, when we all went through the wringers of terrorism insurance. That was a royal pain but we got through it thanks to the government backing. Do the same with CRE and it could be a win-win situation. As the story points out, this is more a liquidity issue than an overbuilding one (at least for now...let's see what retailer goes under today ), and guarantees instead of cash could go a long way toward getting critical refinancings done. Without that, who knows what? So, let's spin this...it is not a bailout. It is not a bailout. Nice mantra, huh?

That's apparently the discussion had between GGP and its lenders at a New York meeting on Monday, according to the Journal . While not imminent, even if General Growth succeeds in extending those debts further, the company is facing so many other loan maturities this year that some analysts speculate the company eventually will seek bankruptcy protection. In all, General Growth has roughly two dozen separate loans totaling more than $2 billion coming due in 2009. It looks like Kirkland and Weil, Gotschal have been giving sage advice to Metz, Nolan & Co. (Oh, and the Bucksbaums, too.) In short: [I]n bankruptcy court, General Growth would save money by forgoing interest payments on its unsecured debt but would also incur costs from the bankruptcy process and big tax bills if it liquidates its holdings. They added that, outside of bankruptcy court, General Growth could determine its own path free of the whims of a bankruptcy judge, according to people familiar with the talks.

Phil Rosenthal reports that the Chicago Tribune , hoping to improve its sales (and perhaps hoping for the demise of the Sun-Times?), is going to sell its retail edition (meaning non-home delivery) in a tabloid format. Home delivery customers will still get the broadsheet format, albeit the narrower version adopted by most all broadsheets. I can't help but think of Jim Traficant, the now-jailed ex-Congressman who used to say on the floor of the House: "Beam me up." The Trib already publishes the Red Eye , a tab directed at younger folks. But the additional publishing costs are still there and you have to wonder aloud if the paper intends to eventually go to the tabloid format completely with time. (Some would argue the new format is better suited to a tab anyway; I canceled my life-long subscription in response to it and don't miss the paper one bit.) I will say that a tab is easier to read than a broadsheet on a bus or a train, thus making the format sensical for

Just some personal thoughts posted elsewhere ...Blog because you like it or consider it a good exercise in keeping current. Consider the additional writing, speaking and clients (or declined business) a fringe benefit. Thanks to the Law Blog for pointing this out.

This one is a classic . How would you like to be the IP lawyer defending "McDnoald’s, a Starbucks-style coffee shop called Bucksstar Coffee, and a wannabe Pizza Hut called Pizza Huh." Of course, you are in Nanjing....Can you imagine going to a whole mall of knockoffs? I'd probably get a kick out of it. I could buy a Folex watch! Seriously, though -- if it is a goof or a parody that is one thing. But there are also major branding and retail issues with this type of stuff, and a whole mall of knockoffs seems to take the illicitness right out of it and tries to legitimize it. That probably takes some of the fun out of it for shoppers. (Apologies to the blog where I saw this first -- just cannot find the link.)

That's the concept espoused by Michael Pollock: tear down old shopping areas and build high-density residential, or at least in Chandler, Arizona. "Housing would increase population, creating customers for infill retail spots, he said." Of course, we've been seeing developments like this for a while in cities, and that can be really exciting. (I am an even bigger fax of mixed-use.) Lots of fun dirt and rezoning work to do, as well. You can even have environmental thrown in to the mix if your center had, oh, a dry cleaner. If you can sell the city poobahs on this one it can be a very profitable venture. H/T Retail Traffic .

That's what we are seeing in an article in today's Journal captioned "Commercial Property Loses Shelter." Yes, you heard it here: DB tells us that CMBS deals that are 30 days or more past due is up to...gasp...1.2%. And,"[t]he delinquency rate will likely hit 3% by the end of 2009, its highest point in more than a decade." Furthermore: According to research firm Foresight Analytics, soured commercial mortgages on banks' books jumped to 2.2% as of the third quarter of last year, from 1.5% at the end of 2007. The research firm estimates that the rate could rise to 2.6% in the fourth quarter of 2008. But then let's jump down a paragraph or two: Prices of securities tied to commercial mortgages have fallen sharply in recent months to the point that prices reflect a downturn even greater than the early 1990s, when default rates exceeded 30%. Yes, 30%. You read that right. Is there any logical step to get from 3% to 30%? Maybe. Perhaps we will hav

Have you been impacted by the closure of the retail or other direct operations of Lawyers Title or Commonwealth Land Title? Some good people I know have lost or are losing their jobs. I don't even have the full story of the impact yet. I do understand -- through a press release -- that the residential closing offices in Illinois except Crystal Lake were all closed yesterday. That said, please note that agency operations have not been impacted negatively by the merger (As I was typing, in fact, an email from Fidelity came in with a new contacts list.) Please therefore feel free to contact my colleagues at River West National Title & Escrow by email or at 312-646-1290, and they'll do whatever they can to help you out. Best wishes to all....

The New York Times has a gloomy piece today on the cycle of layoffs to subleases to vacancies to building owners not being able to pay the mortgages, thus leading to a potential "ticking time bomb." According to the story, Many commercial property owners will face a dilemma similar to that of today’s homeowners who cannot easily get mortgage relief because their loans were sliced and sold to many different parties. There often is not a single entity with whom to negotiate, because investors have different interests. By many accounts, building owners have been caught off guard by how quickly the market has deteriorated in recent weeks. Rising vacancy rates were expected in Orange County, Calif., a center of the subprime mortgage crisis, and New York, where the now shrinking financial industry dominates office space. But vacancies are also suddenly climbing in Houston and Dallas, which had been shielded from the economic downturn until recently by skyrocketing oil prices and

General Growth Properties has switched its bankruptcy counsel , dropping Sidley Austin in favor of Weil Gotshal. Weil has worked on some major BKs, including Lehman (and don't forget its advisory role to GM), and one might think the preeminent Harvey Miller might be coming into play. GGP is also bringing in Kirkland's Jamie Sprayregen (the brilliance of whom I have extolled here previously ). Of course, no one is commenting , but it seems to this complete outsider that GGP wants heavy hitters with so much debt coming due, and those are two of the best in the business.

I've been mulling over writing this article for a while. To quote the late (and improperly maligned) Adm. James Stockdale, "Why am I here?" And in tandem with that: what is my purpose for writing this blog? I like to write. I always have. Whether I am any good at it is another story, but some people seem to think so. And yes, that is flattering. This blog is just one person's opinions about the world, primary that of real estate. I sometimes go off on tangents, and I try not to get too political. I might be full of it, but if you think I am, don't read. That's the beauty of the blogosphere. You will not see much bad written about individual people here, with some exceptions for notable public figures. I try as much as I can to adhere to the principle that if you have nothing nice to write about someone, don't write anything. I rededicate that in writing today, and to those against whom I may have transgressed, I'm sorry. If you want to read