The Dirt Lawyer's Blog Archive

Sometimes real estate lingo sounds like an episode of The Sopranos. For instance: We gotta take a haircut on this deal, Paulie. Oh, just whack the tenant. Is (Broker X) a friend of mine or a friend of ours? We're gonna take out the bank. It's what we hafta do. Okay, maybe I am exaggerating. But taking out the bank is Joseph Freed's goal and its best alternative to a negotiated agreement since any such agreement at this point seems impossible. Freed is looking for equity and debt, according to Crain's today. You can read all about what is going on, including a hearing next Friday. While the receivership order was entered, I think based on the story that the order was stayed until the next hearing, by which time the receiver can take over upon presentation of a bond and insurance. Now, is Freed going up for interim appellate relief in the meantime? I haven't read the order in the case so I don't know whether the so-called magic words regarding such an appe...

First it was Block 37. Now it is the Spire. According to this Tribune story , Shelbourne Development and Garrett Kelleher are counter-suing the bank for fraud, saying that the bank was deceptive in the terms of arranging its portion of the financing for the now-dormant project. B of A went after Kelleher on a $4.9 million guarantee previously, and this is the response. As with past cases, I haven't read the papers and am not planning to do so unless someone sends them to me and/or pays me. According to the story, the counterclaim says that Shelbourne should not be deemed in default because of the economy, in which B of A has taken billions of bailout money. That smacks of the Trump Tower force majeure defense and I think that will be a tough battle. In addition, and again according to the story, one of the allegations of fraud is based on this: "the bank took the proceeds of a certificate of deposit owned by Shelbourne for more than $3.5 million and applied it to the amou...

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....

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've written here before about buyers and borrowers raising defenses of impossibility or impracticability of performance or even force majeure under contracts because of the global economic situation. One of those deals was at 180 North LaSalle, where Younan Properties put down $6 million in hard earnest money to buy the building from Prime Group Realty Trust. Younan could not close and sued to get back the deposit. Judge Maki in the Cook County Circuit Court has told Younan that it loses . “The purchase and sales agreement is a promise to purchase this property for a set price on a set date with no provision for any financing contingency,” Judge Maki said. “That cannot be overlooked or given less importance because of other circumstances that. . . .possibly developed here.”....“That was the deal,” says Robert Hermes, a partner at Chicago-based law firm Butler Rubin Saltarelli & Boyd LLP, which represented Prime Group. Mr. Younan “assumed the risk if he didn’t have the ...

Sorry, I could not resist that head to my post. This article sums it up pretty well. Lenders want their money back from GGP, in full, and now. GGP wants a seven year extension and favorable rates. The judge has been siding with GGP so far, from what I can tell, and the bankruptcy guru of gurus said it best when commenting on the judge's refusal to take some of the properties out of the BK: "The judge encouraged all parties to commence negotiations as soon as practicable in light of the decision," said James Sprayregen, partner with Kirkland & Ellis LLP, General Growth's co-counsel. Some think GGP's best outcome is an acquisition by Simon and/or Westfield, both of which companies I understand have dry powder. This has been done before, especially in combo, as you may recall when Urban Retail/Rodamco's assets were split up by a troika. Now you could have more antitrust problems with consolidation and all that. Others want to see the company survive, mea...

Busy day today...but here are a few items on my radar screen this morning: A Chicago panel says the worst is yet to come . They've obviously seen a bid-ask spread. That and lenders have to start lending again. Don't believe what you are reading about that topic, in my opinion. Mark Walsh is back . You heard that right. "[T]he lead executive who loaded Lehman Brothers Holdings Inc. with toxic property investments, is part of a group chosen by Lehman to take over the bankrupt firm's real-estate private-equity arm." Read the comments in this story if you want some entertainment. Motions to dismiss a number of the SPE bankruptcy filings of GGP by some of the lenders are being held today. Read about the lenders' positions here . When is the last time you saw a headline like this : "Commentary: Extended Stay Bankruptcy Is An Exercise In Stupidity." Don't hold back now, folks. Tell us how you really feel. Finally, without mentioning names or blo...

That's right. You read here and at Crain's . Many properties cannot sell because (a) there is basically no lending going on, regardless of what you may hear, and (b) buyers are afraid the worst is yet to come. Here are the Q1 2009 sector numbers for Chicagoland, per the story and Real Capital Analytics: Industrial: down 81%. Office: down 85%. Apartments: down 94%. Retail: down 99%. (Yup. Two properties, $12.5 million.) I guess the good news is that it can't get worse. Or can it?

Maybe I am just getting old and confused. I thought Bill Ackman was saying before that bankruptcy was the solution to GGP's woes . Now he is saying that the answer lies in a seven year debt extension . As we know, management was already trying to get extensions before the filing. Or was his real game plan a BK and then a forced extension to the creditors? You tell me, because otherwise I will never know. I do know this: I hope Ackman's right about the bankruptcy judge for his sake and for others, including the human beings who still work there. I'm not sure a liquidation would be pretty right now. Actually, I am sure it would not . And if he is right, Ackman says that even at a 9.4 cap (compared to what - a 5.3 on the EOP portfolio?) he stands to make a 1300% cash on cash return. Nice money if you can get it.

Is this what TIF money is meant for ? Moving Willis, a company that got a great deal at Sears Tower PLUS naming rights, from three downtown locations to one consolidated one? Does anyone seriously think they are moving to Oak Brook or Schaumburg? Or is this a condition to the lease? Are there better ways of spending money? Or is this proposed subsidy a good thing for Chicago and money well spent? I am a fan of good TIFs, but I'm not sure whether this is a good one. Perhaps others have opinions more informed than I.

Crain's is reporting that Strategic Hotels is putting the Chicago Fairmont up for sale. This is a tough time to be selling hotels, and it is not the only property on the market here right now. I've never really "gotten" the Fairmont, nor has it ever really stood out in the Chicago crowd in my opinion. And its RevPAR is, well, not so good. The one thing it does have going for it is an assumable loan until April of 2012 at LIBOR plus 70 bps. So the thought is buy now and ride out the recession for two more years, because money for big hotel deals isn't easy to come by today. People are saying this is yet another sign of trouble at the highly levered SHC and that the company needs cash, and now. I don't know. I do not follow SHC enough to tell you. I only know that I always wish Churchllians well, and since Laurence Geller (who says his company is well-positioned) is also chairman of the Churchill Centre, he gets my best wishes. Maybe today's after-m...

Well, I had no clue on this one. I know it happened the other day, but now that I am back home from vacation I cannot help but say a few words (beyond my previous tweet) about the Chapter 11 filing by Sheldon Good & Co. , the Chicago-based real estate auction powerhouse. The company says its filing can be blamed upon its late Chair and CEO, Steven Good, who sadly took his own life in January. Millions of dollars may be missing. Ouch. (By the way, a link to Steve's book and his web tribute are still on the website.) Those who follow the company had to assume there had been some down times just because the market is in the tank, but you might also think the company might do some volume on liquidations caused by the economy. In fact the filing makes me wonder where the auction business is. We also know there'd been a long standing fight between Steve and his father, company founder Sheldon Good, that led to the elder Good's departure from the company. (Crain's sa...

Well, it happened, but not without making a good run at trying to stop it. General Growth Properties filed for Chapter 11 bankruptcy protection this morning. I am reading this: "The filing affects properties owned by the company but does not impact its third-party-management business and some centers owned in joint ventures." Here is the press release that says " broken credit markets " require this filing. (Well, that and levering yourself to the hilt. Wonder how certain former CFOs feel today.) Now, not all the malls are in this 11: Of the 158 regional centers included in the filing , some high-profile properties stick out, such as Ala Moana Center, in Honolulu; Faneuil Hall Marketplace, in Boston; and the Grand Canal Shoppes at the Venetian and Fashion Show Mall, both on the Las Vegas Strip. Of the about 60 properties that aren’t part of the filing , some big-name centers are Water Tower Place, in Chicago; Oakbrook Center, in Oak Brook, IL; and Glendale...

Or so says Wilmer Cutler Pickering Hale and Dorr LLP, the lawyers who say they are representing a bunch of bondholders demanding repayment...or else. You can read about it here and here . There are some people who might be happy about this, including possibly William Ackman . That said, I find this quote telling: The bondholders' action pushes General Growth closer to a bankruptcy filing but doesn't mean one is imminent. A trial spurred by the bondholders' lawsuit likely would take months to play out. Meanwhile, General Growth previously pledged to work with its unsecured lenders to craft an out-of-court restructuring of its balance sheet by the end of June. If General Growth meets that commitment, the trial might not be needed. Is there more here than meets the eye, or is this just a desire to be repaid? (H/T Traffic Court .)

It is hard to be objective when you know people who work at a company. Face it, you don't want friends getting fired. So I'll admit I am pleased with each passing day that I do not see a Chapter 11 filing on GGP. I also happen to think Adam Metz can turn this around. According to today's Journal , even though the company failed to get the consents necessary to get a break on some bonds, "a bankruptcy filing isn't imminent for the mall giant, according to people familiar with the matter, and General Growth's ability to remain out of bankruptcy shows the unusual dynamic between lenders and distressed companies in the recession-ravaged commercial-real-estate market." As I said a few weeks ago, there's not much to be gained right now for the creditors by forcing an 11. If the creditors did not think this was mainly a liquidity issue, that GGP could survive and that they could stand to make more by riding it out than going to court, believe me, they...

I read a story about the stalled Spire in Crain's today that just reminded me why it is so important to get lending moving -- and hopefully the plan announced today that should have been announced in November or on January 21 will do so. It is, of course, that old domino effect. A project is on hole, people lose jobs and cut, and so on: "If there's no buildings going up, what do you do?" said James Connolly, a Laborers' union manager. "Prepare yourself because it's going to get worse before it gets better." Construction workers are accustomed to boom-and-bust cycles but this downturn appears deeper and longer. The impact of lost wages of $35 to $40 an hour ripples through the economy. "People out of work, people lose their homes, people lose their hospitalization, people lose all their benefits," said Tom Villanova, president of the Chicago and Cook County Building Trades, which covers 100,000 construction workers. "It'...

The Tribune reports that Sears Tower is being renamed Willis Tower . But the London-based insurance broker is only taking 140,000 sf of space at $14.50 per foot net. Note that the word "initially" was used, so there are surely expansion options and perhaps even so-called "must-take" options in the lease. We don't know the length of the term from this story or any extension options, how much the rent does or does not increase with time and what other concessions are in the lease. So on the surface at least this looks like a tremendous deal for Willis. First, the rent is reasonable and the naming rights to an iconic building are priceless. Well, I guess they aren't priceless any more. Until I know the whole story, I just call it a heck of a good deal for the tenant. And hey, the landlord gets PR, cash flow and occupancy!

I think that is what the PBS station used to say here when they did fund raising auctions every year back in the day. And I think you will see more of that in real estate, too. Deal Junkie reports that you may see a few prominent auctions in the next few weeks (including the John Hancock Tower in Boston that was the subject of this post recently). The post also cites a New York Times story stating that an auction trade association has reported a sharp increase in activity. Auctions in Chicago are not infrequent, due in no small part to the activities of Sheldon Good & Co. , a national real estate company headquartered here. I am sure Shelley is doing well, notwithstanding the sad loss of Steven Good early this year. But remember one thing: not all auctions are public. Take the EOP deal. That was essentially a private auction for the whole portfolio, followed by additional private auctions for some of the pieces. This is a great opportunity to maximize value when the time i...

You may have heard that Younan Properties did not close on the acquisition of 180 North LaSalle in Chicago. There had already been three months of extensions granted and apparently Prime Group Realty Trust had had enough. In anticipation of being unable to meet the latest deadline Younan filed an action in the Chancery Division of the Cook County Circuit Court apparently seeking the return of its $6 million in earnest money. The case is 2009-CH-06451 if you want to see the docket. According to Crain's, Mr. Younan filed the lawsuit Feb. 13, claiming he was unable to close the $124-million deal after the global recession and frozen credit markets prompted a key lender to back out of talks to finance the purchase. Prime Group issued a statement Thursday saying the deal, due to close by Feb. 18, was terminated and that the Chicago-based REIT was entitled to keep the earnest money. Mr. Younan’s lawsuit says the credit freeze means the “doctrine of impossibility and the imprac...