The Dirt Lawyer's Blog Archive

According to this story, the proposed tax hike on carried interest appears to be dead for the time being : Senator Debbie Stabenow, a Democratic member of the finance committee, told Crain’s Detroit Business on Tuesday a hike in the rate of taxation for carried interest would “not be part of any bill we pass”. Boy, let's hope so. I understand the desire to go after the hedgies and Wall Streeters and the banking industry in general. Really, I do. But, as I have said before for, oh the last year and a half or so, this would be a disaster in the making for commercial real estate. And I am by no means alone . As the ICSC puts it: Unlike private equity firms, the carried interest for the general partner in a real estate partnership is not guaranteed income. Most real estate partnerships must exceed numerous hurdles, which result in the limited partner realizing a return on investment before the general partner sees the first dollar of gain. Moreover, the general partner often experi

For all intents and purposes, that is what this excellent story in Crain's , captioned "Illinois enters a state of insolvency," is telling us .  I think most of us already know it and just do not want to say it. California is in worse shape in terms of numbers but on a per capita basis I think Illinois takes the cake.  And we have the worst negative net worth too.  We are about $1,000 per person in the hole -- or $12.8 billion. Hoo boy. "According to Jim Nowlan, senior fellow at the University of Illinois' Institute of Government and Public Affairs[,] 'We're close to de facto bankruptcy, if not de jure bankruptcy.'" (Full disclosure: Jim was teaching at my undergrad during part of my tenure there, but I was not his student as I recall. I do remember Jim being a good, smart guy with a tennis game to boot.)  The problem? Chapter 9 probably does not apply to states, so how does a state go bankrupt? Some very hard choices are going to have to be m

And I say that with apologies to devotees of Winston Churchill. Most people will say that Tishman and BlackRock walking away from Peter Cooper Village and Stuyvesant Town is the end of the beginning, and that the [insert cliche - shoe drop, train wreck, yadda yadda -- here] is now going to go into full force. This should be a major league equity write off on the equity side-- say a cool billion?  And, given the huge drop in value of the complex, the lenders are in deep too. This happened, by the way, after some weeks of negotiation between the parties.  But then let's also not forget this deal has been is trouble almost from the get-go; what, two years or so now? Others are going to say, there's blood in the streets, so buy. I hope so and that they can find the money to do so. It has been suggested that we need some FDIC type shared loss agreements to get the debt markets moving again. Not a bad idea. What I found interesting from the legal side is that this deal will be a d

What is more important these days? At one point I would have said the former but now I think I may have forgotten the Golden Rule: those who have the gold make the rules.  That is the case with lenders and borrowers. After having had the upper hand for so long, borrowers are now on the shorter side. And that is why we are seeing what we are in the business on loans, whatever cliche you decide to use. Lenders insist that to extend or to enter into new deals, more money, more guarantees, more collateral, more interest -- more everything, really -- be on the table so the lender is in a better position. Oh how times change. About the only thing that is lower these days is LTV. This isn't necessarily to blame lenders either. Some property is worth less.Banks are afraid to write down deals even if they should or the FDIC urges them to .  And this is all as some people think prices are finally stabilizing . Now the money has to flow. As a lawyer, what do you do? Negotiate the best terms

Much as I rail on the bankers sometimes for not loaning money for commercial real estate projects, perhaps I cannot blame them. Why? One reason is certainty. Loans were packaged as safe and rated investments by the rating agencies. But now we see that insane numbers of deals are under water, meaning more pain is on the way. We are talking 36% of loans maturing this year, according to reports . There is utterly no certainty in that type of investment, thus making it very risky. And properties going back to special servicers can be ugly, as the linked post suggests. This will present challenges to us on the legal side and require major league due diligence on these properties, since I don't think you can expect no reps and warranties from the servicer in a distressed sale. Meanwhile , "Banks are making money because they're borrowing at ridiculously low rates from the public and central banks and then investing in higher-yielding government securities." Borrow our money

Oh, wait...Armageddon's been used as well to describe real estate. I've also been guilty of using hackneyed phrases to describe what the market has been like. Last year's fave was "extend and pretend." So far in 2010, "train wreck" is in the lead.  You've got Jamie Dimon , the New York Times , plenty of other news outlets , Time of course...it goes on and on and on , sort of like The Song That Goes Like This from Spamalot . (I love Sara Ramirez...she basically stole the show in Chicago.) Here's another piece of good analysis from Kenneth Leonard.  And here is a contrarian view posted recently. My pledge? I will try to stay away from using cliches to describe the market. But I will probably fail. After all, it is practically a tradition.

When I go through my list of blogs I like to read, I often come across a casualty: a blog that has ceased to exist or has stopped actively posting stories.  I'm always sad to see that because I like reading what my fellow bloggers have to say.  And there have been some very smart people doing this. Maybe these factors are the same in all types of blogging -- I'm not about to do the research -- but I have some ideas as to why and would like to hear from others about why this trend goes on.  And let's talk about why I am still here, too -- what the heck. Most -- but not all -- of the bloggers who have quit are not professional writers, or part of an organization or a company.  As my profile in Real Property Alpha points out , I am not one of those folks.  I am just an individual.     Time.  Yeah, blogging can take up a lot of time.  So many people quit because of the time factor.  I am not a professional blogger so I do not parse every word.  Most of what you read is a first

A lot of people have been writing about Time's characterization of the commercial real estate market as a "slow motion train wreck."  And I agree with those who think it may well be an apt analogy. There is still going to be hurt going on as loans mature, lenders do not lend, and equity requirements go through the roof. And I wonder aloud if we'll still need some kind of RTC situation to eventually handle it, although the slow-mo nature of it all may obviate that need.  I do know this: when some smart folks were talking about how awful the market was, the mainstream media was gaga over how great it was.  So...can you say vice versa?  I'm just saying....

I am guest blogging at Jeff Brown's excellent website today; if you like to read my perspectives on mortgages and the due-on sale clause, then read here .  And have a great day!

That was my immediate reaction when I came across this piece over the weekend. Previously I was pooh-poohing talk of 2 and even 3% delinquencies on the grounds that they were still crazy low. But once you get over 5% then you start a-thinking a little more. The numbers by sector were about what I expected with one exception: The multifamily sector accounted for 26% of the $37.9 billion delinquent unpaid balance for CMBS in November, followed closely by retail (25%), office (16%), and hotel (15%). Conversely, the industrial market accounted for less than 2% of the delinquent unpaid balance for CMBS during the same period. Health care properties represented less than 1%. Hotel at 15%? Does that include the ESA loan? If not, I agree with the story that you are going to see more trouble there before it is all said and done. But are we going to hit 7 or even 8% in 2010? The hotel sector alone might be able to push that number, but we'll all just have to see. (Boy, do I wish I owned a w