The Dirt Lawyer's Blog Archive

A couple of months ago we noted that Shorenstein Properties was now a buyer . And they meant it. Yesterday the WSJ reported that Shorenstein is buying two of the properties DB took back from Harry Macklowe, and at a 20-30% discount from Macklowe's price. The story also reports that Paramount is buying a third building, presumably at the same discount. Does this mean other buildings are going to tank similarly? Probably not. Most analysts were saying that Macklowe overpaid for his chunk of the old Zell/EOP empire, and the credit market agreed by not bailing Macklowe out when his loans came a-callin'. We need more empirical evidence -- meaning more deals -- before the real correction can be ascertained. The smart money has been on 15%, and I'm not inclined to disagree.

This Fortune profile of Harry Macklowe is really fascinating. It highlights the ups and downs of a long career in the real estate business. The story says you either love him or hate him. I don't have feelings either way, but the guy has big platinum ones for the risks he takes. According to the story: Now the 70-year-old developer is in the middle of a maelstrom of a different kind. This time it's in the credit markets. Thanks to his personally guaranteeing a $1.2 billion loan last winter, he may lose billions of dollars in real estate, his homes in Manhattan and the Hamptons, his contemporary art collection, and even his beloved yacht. This would be a bitter end to the career of one of New York City real estate's most polarizing figures. And here I am worrying about a small loan for a start-up company. They say not to worry about timing the market, but sometimes timing is everything. Take Sam Zell and the EOP deal. Was that perfect or what? Again, the story sez: I...

The weather is holding for now, so I'm going to be brief today and try to enjoy the weather while I can. (I also know I have several deals that will keep me chained to my desk all week next week.) I apologize in advance for the shotgun approach to blogging and the lack of analysis. First, Jordan Crouch has a great explanation for beginners on CMBS loans. Great job. Call it CMBS for Dummies. Next, check out a good story on the ripple effect of the Blackstone-EOP deal at Commercial Property News . The moral? We may not see the likes of it soon because of the credit crunch, but real estate people now know that at least theoretically, no deal is too large to do. (But would you want to?) There is also some good information on the flips and the "Blackstone effect" of rising rents in some markets. CoStar's watch list for this week contains a fairly lengthy summary of bank views on the lending market as it stands today. After only eighteen months of ownership, th...

This may be one . I was introduced recently to Kevin Kingston's blog, and he has a good post about Harry Macklowe's acquisition earlier this year of seven NYC buildings in the old EOP portfolio. Kevin gave us these terms: Purchase Price: $6.8 Billion Down Payment: $50 Million Amount Borrowed: $7.6 Billion (that's $800 million more than the purchase price) Cash Flow: Negative for at least five years Occupancy: 95% Deal Consummated: 10 Days Aprox. Square Feet: 8.41 million Aprox. Price Per Sq. Ft.: $808 He also compares the cash flow issue to that of Harry Helmsley, who bought buildings for cash flow rather than developing. He did all right, eh? This probably ends in one of three ways: success (rents will probably rise, and think of the phenomenal IRR on a $50 million investment for a $6.8 billion deal!), the mother of all workouts (short-term debt is coming due soon) or properties on the market cheap next year. Keep an eye open.

Bloomberg moved a story today citing experts predicting price drops in the US commercial real estate market of up to 15%. The story also says that because of these drops potential sellers are holding deals; additionally, contracts are terminating because of financing issues and increased borrowing costs and yield spreads have increased to up to 200 bps above 10 year Treasuries. Several experts are predicting big price drops and much less activity. I guess I have to sort of repeat what I have said before. This may be a good thing for many investors, including the types I represent. Yes, some speculators are going to get hosed, and, at the risk of sounding cruel, rightly so in my opinion. As the story says, cap rates in 2002 were at 9.25%. In the 1Q of 2007 that rate was 6.5%, and the EOP deal closed at an amazing 5.3 cap (no wonder Sam got out...what a genius). Also remember that many EOP deals were flipped, perhaps at even lower caps. Let's not forget that rents are still ...

I mentioned the other day that I thought some players had to be sitting on cash waiting for a price drop . Here's some confirmation from Susan Diesenhouse in today's Tribune . We already knew Hines was flush with pension fund and other cash, and it also looks like Hines is buying 101 N. Wacker in yet another EOP/Blackstone flip. And I'll bet more than a nickel (a quarter, perhaps?) that Hines and Intercontinental are not alone.

This is an interesting theory I came across today. The gist of it is that deals have been done at high prices (the so-called "Blackstone Effect" from its EOP acquisition) under the theory that you are buying the property for its future value based on the assumption of continuously rising rents. I call that kind of thinking risky, except maybe in the scarcest markets (Manhattan, maybe downtown SF, central London, etc.) and perhaps even there to boot. In the 1990s everyone thought rents would never go down and that demand would always exceed supply. El-wrongo. Now this is a completely different market from fifteen years ago, but as Santayana wrote (a phrase that, alas, Jim Jones co-opted in his tragic camp in Jonestown), "Those who cannot remember the past are condemned to repeat it."

As expected, it did not take long for GE to close on its acquisition of the suburban portion of the Blackstone properties acquired in the EOP deal. Unlike other deals, only one property was flipped, and that was because it was in Bannockburn, which is outside GE's target property area. It is nice to see that GE is looking at a mid-term hold on these buildings. They have high occupancy and should remain that way. Meanwhile, back downtown, two different JVs led by John Buck Co. and Golub & Co. have pulled office buildings off the market after negotiations with two California based companies to acquire 200 W. Monroe and 225 W. Washington. Crain's reports that the Buck deal had a signed LOI (glossary: "letter of intent" -- usually but not always non-binding) but pulled out anyway. Perhaps both sellers were not getting the returns they expected. What stuck out in this story the most is a quote from Zara Younan, principal of the eponymous Younan Properties, Inc....