The Dirt Lawyer's Blog Archive

So, more details are out on Block 37. Work from the awesome team at Crain's is that apparently Muvico walked from its anchor lease at the property but offered to come back at better (read: cheaper) terms. In other words, it looks to me like the old tenant cramdown. Freed, not wanting to lose the deal and presumably sensing it could still make money, takes the deal to Bank of America. Why? Because the lender as a rule in deals like this has the right to approve major leases or material modifications to existing leases. Sometimes there will also be specific criteria under which the borrower can enter into leases without lender approval. And Freed is telling us the lender said no, and did so "improperly." You can read the story to get the gory detail being alleged in Freed's motion to dismiss, the gravamen of which is that it thinks the banks wants to capitalize on Freed's work to lease up the property and profit from it. Now, the lender can argue that it did

Is this a classic case of no good deed going unpunished? Or is it just a lender enforcing its rights, albeit at an awkward time. Bank of America, as the lead lender, is foreclosing on the retail portion of the long-awaited and oh so troubled Block 37 in downtown Chicago and will be in court this afternoon to have CBRE appointed as a receiver to keep the project going, including finishing construction. Unless there are some defenses sitting out there that we'll hear about, legally they presumably have that right, and even though Freed says construction could grind to a halt, surely the loan documents contain assignments of the construction contracts, architectural drawings and all that so the lender could in fact take over the project. (Hopefully none of the retail deals will allow the tenants to pull out in the event of a foreclosure or bankruptcy or something, or the project gets done in time to prevent triggering the right to walk for failing to finish landlord construction.

Here's a neat little piece about renting kiosks in the LA Times. I don't really remember seeing them in malls as a little kid, but installing them made so much sense. By putting them in what was once common area of the center you essentially create found money. (There are also common area carts, which is a slightly different beast; contact me if you want to know more.) It can also be a win-win for both parties. As the article says, kiosks can be a cheaper way for beginning retailers to get into the business, perhaps with a cheap(er) and short(er) term lease. And for landlords, while the rent may be cheap, on a per square foot basis the kiosk can be great. But if you are thinking about opening a bead shop for the holidays, remember a few things. The break-even costs are not low, the hours can be brutal (you have to be open whenever the mall is, which can be 70+ hours a week), and there's plenty of competition even in a recession. But if you have an itch to do retail,

Here is an interesting story citing a study by Real Capital Analytics showing that lenders might expect to recover about 60% of their investments on defaulted commercial loans that have been liquidated, with varying numbers by sector. Is that an incentive to renegotiate deals, extend and maybe pretend, or to look to sell the notes, take the 60% and run? The 60% is before costs and fees, by the way. I think it might be a sign that everyone is going to have to take a hit in this market. But we knew that already. My one quibble with the study has nothing to do with the methodology of RCA but rather of the study sample. I think, for instance, it is hard to say that a lender on a land deal is only going to get 32% of its money back when the sample size is so small. I also do not know the statistical significance of 145 properties in the grand scheme of the market. There's also the issue of asset location. What I really found interesting is that the "underwriting" of th

Ask around. I have. Today's Journal has a story stating that Peter Cooper Village and Stuyvesant Town is in imminent danger of default (well, meaning two to four months), and that will be "signaling the beginning of what is expected to be a wave of commercial-property failures." It could be. We keep reading and hearing about the coming crash. But then you have Harvey Green telling us that the shoe hasn't dropped and will stay on the foot, albeit unlaced. (H/T to Jeff Vinzani for pointing this out to me via Twitter.) Green's take is that lenders needs to get a little more to the center. (I agree that banks are still unwilling to lend in some cases.) That does not mean there will not be a disaster, but it does not have to be. I like his views on the state of the market. My take? If there is no panic and people look at this smartly, then we'll have a market upset somewhere between a ripple and a wave. Many deals that "work" still need to be

Just a few quick observations and thoughts on the real estate market on a rainy Thursday: My nephew works at a bank and he tells me anecdotally that only 25% of mortgage loan applications are being approved. Is that tight underwriting, a lack of desire to loan, lack of capital, or something else? On a related note, lenders are really taking underwriting seriously. While it can be a pain, I think that is a good thing so long as the lender is actually doing deals. I'm looking at the October issue of ICSC's monthly magazine, Shopping Centers Today. At a mere 54 pages, it is a tiny fraction of the size it was even a year ago. Presumably chalk that up to a lack of advertising. That same issue cited a headhunter who said he hadn't seen an opportunity in development, construction, tenant coordination or acquisitions. There was also a profile of a former GGP exec, David Grossman, who is working as the Chicago master franchiser of a fresh food restaurant concept. I haven'

Yesterday we saw some optimism about cap rates and interest spreads that made me feel good. But what still has me worried? 1. The dollar. We keep printing money and are running obscene deficits in the hopes that it will bring back the economy. Is the the 1970s (or even the New Deal) all over again, albeit on steroids? Remember, we are not out of the woods yet. And this story about the allegedly planned demise of the dollar as a reserve currency really spooked me. Maybe a weak dollar might encourage foreign investment in CRE in the US -- I understand that -- but that does not necessarily make it good for the future of the United States as a nation. 2. A jobless recovery. Unless you have jobs you have little need for additional office space. People can't or won't start new companies and existing employers don't want any new space. Bob Herbert at the New York Times has an excellent piece on this today. We need to find incentives for job creation. More government,

Losing the 2016 Olympics seems like a big bust for some people, including in the CRE industry. Yes, we lost a lot of potential public and quasi-public projects because the IOC decided to send the 2016 Olympics to Rio. By the way, does anyone seriously believe the 80,000 seat Olympic Stadium could have been built for $397.6 million? We all know on-budget Soldier Toile....err....Field and Millennium Park were. But this post is not about second guessing. Instead, where do we go from here? Infrastructure improvements, to me, seem to be the most important thing to concentrate on. Let's assume we find the money. Public transit needs to be improved. Chicago once had a public transportation system that was the envy of all. Today? Not so much. We keep talking about high-speed rail. If we are going to do that to make it really work then rail lines within the city need to be upgraded to accommodate decent speeds. Maybe commuter train speeds could be improved, too. Try taking the

I really like this analysis by David Lynn posted at NREI. Why? Because it makes sense to me. At one point, the numbers were insane. People buying deals at a 4 cap with the unfounded expectation that the bubble would go on and on and on smelled of tulips in Rotterdam. And yes, the frost came. But look at the charts now, if you happen to be a chart person. Add in your risk premium and real estate is slowly starting to make sense again. Buy at a 10, sell at a 8 is the maxim I have mentioned here before. And as the caps reach reasonable levels, real estate's making sense again. That is the beauty of cycles. The thing is - it could still get better. But I agree with the analysis that smart money will start jumping in again with relatively "safe" deals - reasonable interest rates, LTVs and expectations.

What do you think of these thoughts from Chris Vittetoe, now of HFF? (I have done deals with HFF in the past and like the way they work, by the way.) He tells us 80% of life insurers -- an old, traditional way of getting good size deals done before the CMBS boom -- are in the market. Of course, your LTVs are at 65% but decent rates, and then some aren't really back if you read this sentence: "We just met with one lender that has allocated $30 million for LA County for the rest of the year. That is $30 million for all real estate assets including office, retail and so on." That is one decent sized deal, even in this market. I'm also not sure that I agree with this conclusion. "A lot of people think we are still in a liquidity crisis but that was never true. There has always been plenty of money available just not at the pricing and leverage that some borrowers want." At least in my world, I knew a bunch of lenders who were not able to lend money at any pr