The Dirt Lawyer's Blog Archive

That's what this article claims is happening, at least in Orange County. On top of loan money often not being there, the disconnect between buyers wanting to buy low and sellers wanting to sell high might be narrowing. Until that happens in many more markets, and money is there to lend instead of being spent on raising banker salaries then you'll see slow activity. Oh, and it goes without saying that a soft leasing market does not help either, and that won't improve for so long as unemployment keeps rising. I am starting to sound like Chicken Little again and I don't like that, so I'd better stop writing.

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...

CoStar reports the ubiquitous Younan Properties is taking the plunge on 180 N. LaSalle, with a closing date of no later than December 17. There's light at the end of the tunnel? That's what panelists were saying in Irvine yesterday. If you own a title policy through LandAmerica or are closing a deal with them, don't panic. Fidelity has you covered . If you have a 1031 account with them, then, you may have a problem . That company and the holding company went bankrupt. Lawyers Title and Commonwealth Land Title did not and are being sold to Fidelity and are doing business as usual. Bailout money and CRE: where's ours ? Doug Cornelius has a great post on the New York Daily News "stealing" the Empire State Building by preparing and recording fraudulent deeds. Apparently they conveyed the building right back the next day, but I agree with Doug (caveat: I am also not licensed in NY) that someone will get in trouble over this one way or another.

I guess Tony Thompson wants back in at Grubb & Ellis (the name of the consolidated company after the Triple Net Properties deal -- as you know Tony started that company): Thompson, who has criticized Grubb & Ellis management for some time after leaving the company early this year, has mailed a letter to Grubb & Ellis stockholders that says, “We have watched in dismay over the past nine months as Grubb & Ellis has, in our view, lost its way.” Thompson is just not happy that G&E has lost 82% of its value since he left. Join the club, bucko. The market's tough out there. Grubb responds by saying that Thompson may just want his company bought out or absorbed, also noting: Thompson's suggestions offer “nothing that has not already been implemented or considered” by the board and “completely ignores the realities of the current economic environment and real estate market,” the company said in a letter to shareholders. I do not have a dog or current client in ...

Here's an LA Times story reprinted in the Tribune about super high end movie theaters coming to the LA area. We're talking $35 a pop, by the way, and amenities such a Belgian beers and gourmet pizzas. Sadly, I didn't see any Chicago angle here, which means the cutbacks are precluding local reporting or people on the dirt beat at the Trib don't know about any local deals so they could add a graf or two to their story. Oh, well. Another angle is the risk factor. I see these deals as risky in a way because we all know how theaters can go under and don't want to pay much rent. But in mitigation they can bring very heavy foot traffic and ancillary revenue, and if they blow out you have a shell that in some cases may not be so hard to retenant. Personally? I almost never go to the movies anymore. And I love films. But we are blessed with a nice media room in our house. No screaming kids, no sticky floors, and you can pause for a bathroom break at will!

This story may give you a clue. Some California real estate lawyers, especially on the residential development side, are not fully utilized, so they are using the time to work on restructurings, risk management and other related projects. The major California dirt boutiques mentioned in the story (interestingly filed under "small firms"...LOL) all say they are doing all right, and that while they may take some flat revenues or per partner profit hits, there are no plans to pull a Cadwalader. Heck, Allen Matkins is even larger by 15 lawyers! As I have said before, this is a smart strategy. In the 1990s there was a dearth of junior real estate talent because no one joined the field for several years running. By maintaining numbers and not going nuts with growth and layoffs, there's more stability. In short, these firms learned what some firms (you know who they are!) did not learn in the last layoff debacle or two.

Things have been crazy, so I've been remiss in not posting daily. I'll try to improve that. A few items from other blogs caught my eye this morning. One is the passage of a green building code in California, voluntary until 2010 and mandatory thereafter. My take? The private sector is usually, in my opinion, the better way to go about making changes in how things are done. But then, California was the leader in the anti-smoking movement and I'm not sure those bans would ever have come into place without government intervention. We'll see whether this is a folly or a harbinger of things to come. I can already see the potential litigation coming out of this. Commercial property prices are continuing their adjustment downward . Some of that may also have to do with the sales being predominantly in smaller properties where sellers are willing to take haircuts. People who can are holding on to their trophies. Still more pressure on the retail side with Mervyn's...

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?

Jordan Crouch has two great posts today on lending; one on brokers and the other on rates. Just go to his blog and look at them. I saw an ad in the paper today mourning the loss of Kimco founder Martin Kimmel. David Bodamer has more . Edward Roski has his latest proposal for bringing the No Fun League back to Los Angeles, this time with a 75,000 seat stadium in the City of Industry. Good luck. Apparently they only have to file a supplemental EIR, but even if someone wants to move a team to LA does anyone care anymore? With so much else to do (including USC and ucla football), I'm not so sure. Why am I being so short? It is noon. I have largely finished my work for the day, and I am eager to go play at least nine holes. But there's a storm front coming soon, so I'd better hop to it! Have a great weekend.

A long time ago I wrote that mogul Charlie Munger was going, to his own potential financial detriment, to bail out Dutton's Bookstore in Brentwood. Alas, it was not enough. Dutton's will close anyway at the end of April. Munger "said in a statement that he would allow Dutton's to use the space rent-free during the liquidation and that he would cover the $550,000 debt in exchange for the store's closing." So he gets the ground floor retail and can make some good money, but hey, it is still generous if you ask me. The story at least did say that there are still many good independent bookstores in the LA area, including Book Soup on the Sunset Strip and Vroman's in Pasadena (two of my favorite haunts when I lived there). But each indie store closing is still sad.

Here's the scoop . Some local (meaning Chicago) developers bought the area around the iconic Hollywood sign from Howard Hughes's estate in 2002 for $1.675MM. The property was appraised recently at $6MM. The current asking price? $22 million! Some property slump, huh? This is, of course, one-of-a-kind land and therefore recession proof under the theory that a few people (up to five, they say) will want to live where everyone looks at their house. I have a feeling the city of Los Angeles (and certain factions of the population) will try to slow down any attempt to build there even though the land is zoned residential and notwithstanding the assertion that "most of the development site is on a ridge behind the hillside with the Hollywood sign."

The Los Angeles Times has a good story today about the current state of the California market. The main point? Sale prices are down and many sellers are holding right now rather than selling. The point you have to look for? Rents are still at record highs, vacancies are still low and all sectors in the industry are basically healthy. In fact, the story states, buyers are having a hard time finding so-called distressed sellers. So...cap rates just came back to reality (I don't think the story said that, but I will), as did lenders. The best line in the whole story, in fact, is the very last one (no, they did not bury the lede ) from DLA Piper attorney Michael Hamilton: "Smarter, more prudent lending practices will be implemented," he said, "but the market will continue to develop and grow." I admit that I didn't like the "chilly" headline of this piece, but the reporting was, in my opinion, pretty spot on.

That is a hefty number by anyone's definition. Reports from crefeed.com indicate that Two Rodeo Drive in Beverly Hills was sold to an Irish partnership for $275,000,000, or just about $2,175 per square foot. And you just don't get the blue box -- Versace, Damiana, Gucci and Porsche Design are thrown in as well. Of course, even though I have done some deals in Michigan Avenue in Chicago, the rents on Rodeo are so sky-high that I am getting a nosebleed just writing about this.

I was listening to Hugh Hewitt's great radio show on my way home last night and had the opportunity to hear him comment on the recent goings-on at the University of California-Irvine. Apparently UCI received permission to open a law school. Hewitt's blog has all the details. I care for two reasons. (1) I used to live in Irvine; and (2) UCI hired my Con Law I professor, Erwin Chemerinsky, to be the dean. (For the record, Kathleen Sullivan, former dean of Stanford Law School, was my Con Law II prof.) But somehow politics apparently got in the way, and Erwin was sacked before even getting far off the ground. All in all, I probably agree more with Mr. Hewitt on politics and legal issues than I do Erwin. And I agree with him here: this is a travesty. Put politics and world views aside. Dean Erwin Chemerinsky would have given immediate credit to UCI's law school, making it easy to attract first-rate legal scholars and attain prompt ABA accreditation. He is an excellent s...

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?

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.

Cushman & Wakefield is reporting that office rents in the second quarter of 2007 are up 12% compared to the same period in 2006, with vacancies at a seven-year low. Apparently, and not shockingly, New York and San Francisco are leading the way. We also know that downtown Chicago is doing well, too . So be happy if you own a building there. I'm not trying to be Mr. Pessimist, but, just like all politics is local, so is real estate. What about suburban rents? Some are well, and others not. Some markets may be slow for a long time. Note the following from Bloomberg's story: "The country's highest office vacancy rates in the second quarter were in Dallas, at 29 percent, and Atlanta, at 24.6 percent. Rents in Dallas rose 5.2 percent, and in Atlanta they dropped 1.4 percent. Both cities are feeling the effects of development booms from the past several years...." So, if you bet right and bought in those markets where land is scarce and demand high (and what ...

Here is the scoop on the $1.85 billion sale by CalSTRS of one of its biggest industrial portfolios to a JV of Lehman and ProLogis. CalSTRS was advised by my friends at CB Richard Ellis Investors, who have a great track record with this institutional types. According to the story, "There are 114 industrial properties in the ProLogis-owned portfolio, totaling 24.7m s.f. (0.185806m2), located in Reno, Las Vegas, eastern Pennsylvania, Chicago and Tejon Ranch in Southern California." And (as I shake my head in disbelief), the cap rate was below 6% and might have been lower had there been more California dirt involved.

A nice portfolio of 50 grocery stores with 2.3 million square feet of retail ? How about 475 Fifth Avenue in Manhattan? (the intersection of 41st & Fifth, for non-New-Yorkers) Those deals sold for $160 million; figure $5 million in costs and some extra cash to pay me. Or, if you have some cash to burn, you could buy a single-family residence in Beverly Hills: the Hearst Mansion . It is on the market for $165 million. This is no Hearst Castle in San Simeon (now a state park), but it ought to be big enough for just about anyone: 29 bedrooms, three pools, a theater and a disco. (Disco? Time for renovations....) It will be curious to see who the buyer is and the final price at this behemoth. I could not find any pictures offhand, but the estate was apparently used in The Godfather . So make an offer the owner can't refuse.

As an avid reader, I love seeing stories like this . Charles Munger, the founder of one of LA's most prestigious law firms (and, of course, Warren Buffett's partner in Berkshire Hathaway) owns property in Brentwood that he planned to convert to condos. Ho hum. But, so the story goes, the location is the home to Dutton's, perhaps LA's best independent bookstore. In response to neighborhood opposition, Munger has changed his plans and will build retail instead. Of course, retail is hotter than residential right now. But, given the low rent Munger says he will charge the bookstore and the way the construction will proceed to minimize interfering with business, he is definitely not maximizing his profits. So I say thanks, Mr. Munger. It is refreshing to see that there is more in the world than making a buck. This quote from the LA Times story is so spot on: "'Bookstores are fragile,' he said. 'Jostle them slightly and they never reopen. The best...