The Dirt Lawyer's Blog Archive

Happy May, everyone! Swine flu scares notwithstanding, I'm looking forward to what is left of the spring. Work is still busy, but I did find a few interesting things in the blogosphere and the internet that I'd like to share with you. Still confused by defeasance? Don't worry, most people are. My first one was . If you really want to learn more, here's a primer you might find interesting (H/T Deal Junkie .) Do you think we're gonna see some M&A activity in the REIT market? (Short answer: yes.) "Banks are shortening the terms on lines of credit that have long been used by companies to avoid cash crunches -- a sign that while lending is reviving, businesses are facing new hurdles to obtaining credit." More news on a " rising tide " of CMBS defaults according to Fitch this morning, including the number of loans going to special servicers. I wonder aloud whether some borrowers are just trying to get to special servicers for workouts or to...

So where is ProLogis going - back up, or to toast city? We saw its stock pull a GGP last year, going from ~$66 to ~$2, and it is now trading in the $6 range. CPN has a story today about the company pocketing money from selling its China operations and other activity that is making strides to reduce debt. The story goes on to talk about leasing activity, executive changes and everything else the company is doing to improve. By the time I finished the story I felt like this: link . On the other side, you have Richard Woon , who was bearish on ProLogis last year and presumably made a lot of money going short on the company. Good for him! I need to do that more, but I do not have Richard's analytical skills. His takes on the company are here ; while he has a new target now I'm sure he still has strong feelings about ProLogis. (And Richard, if you are reading, I welcome you to chime in with any thoughts.)

GGP moved an updated press release stating, " [i]t has not reached unanimous agreement with its syndicate of lenders to further extend the maturity date on the $900 million Fashion Show and Palazzo mortgage loans. The Company is continuing its discussions with lenders regarding its loans." According to the press, the word is that Citibank, the lead lender, is the lone holdout . Globest.com says that Citi is "heap[ing] requirement upon requirement for the REIT to meet." Now, we don't know exactly what those requirements are, but of course the cynic in me immediately says, "How much money has the government given them in a bailout, supposedly to lend?"

Hard to say at this point. The stock's up 31% as I type. The company announced that it was able to refinance $900 million in debt , but that is not the $900 million that comes due today for the Vegas malls. There's no assurance of further extensions on those loans; I'd have to speculate that this is because Citibank has been playing hardball by wanting a retrade on another deal. And I guess the other banks cannot, have not or will not buy Citi out of its share of the loans, which is one way to skin that cat. For those of you interested in the CMBS part of the deal in the event of a filing, this story on a Fitch downgrade will explain it well , and that those investors ought to be safe becauseof bankruptcy remoteness. Ah yes, substantive nonconsolidation opinions.....zzzzzz...... Have a good weekend! I'll be back if there is more to say. I may have to head back to the Office Depot liquidation sale at the brand-new branch near my house. So sad. That's a ...

So Lehman filed but is now back at the table with Barclay's to sell significant assets to them, AIG might be next (a trillion dollars? ), the Fed meets today and may lower rates (100 bps = panic city?) and the market's in the tank. Oil prices? Down. What's up? The yen and the Euro. REITs also took it on the chin . GGP is especially being hit heavy. I've written before that GGP's not going anywhere, but in this market all bets are off. My ex-partner, an ex-Wall Streeter, told me it was "absolutely inconceivable" that Lehman would go bust. Simon, according to David Bodamer, might be being beaten up unfairly. The word on the street seems to be: perception trumps reality. Hank Greenberg on CNBC tells us that "it is in our national interest that AIG survive" and that it is a "national treasure." This is an open plea to the Fed to save it because he says the problem is only one of liquidity. He then tells us that an AIG bankrupt...

Reports are that REIT prices are declining again : According to the Wall Street Journal , real-estate investment trusts (REITs) saw a Q2 2008 that was basically opposite the first. The WSJ says the Dow Jones Equity All REIT Total Return index was down 4.9% in the second quarter. In Q1 of ‘08, it was up 1.4%. I guess I am not surprised. The market on the whole has tanked lately. And also remember that REITs can be more volatile than stocks, especially the Dow or the S&P. They go diddley up-up, they go down diddley down-down. And let's not forget that the Dow in this case actually declined by more than the REIT index. So things could be worse. Oil and inflation are the dragging factors here.

Let's forget all the politics here. As I have said before, green practices can have a positive impact on your bottom line. Ask Lee Scott , who says Wal-Mart isn't green but undertakes green practices to make more money. Case in point: TIAA-CREF wants to reduce energy consumption by 10%. Is that green? Yup. But it can also improve the bottom line, which makes your properties more valuable. Now, as Ellen Sinreich (one of the go-to people in the biz) says acceptance is not universal, but everyone knows it is the way the industry is going. So what would make the industry go green faster? Incentives. Some tenants will pay more to be in a green building but others will not. Mandates can also help (as Lisa Michelle Galley points out in SF, which is moving toward mandatory LEED), but I prefer carrots to sticks. Things like what Chicago is doing (some requirements, but expediting permits and the like which can be a HUGE plus) and other incentives would move developers in tha...

It looks like there is not much confidence in CRE, at least at the REIT level. David Bodamer (citing thestreet.com ) tells us that investors are shorting REITs at near record numbers. So, even though REITs are way off their highs, the expectation is that the prices (both of property and stock) are going down even more. This could be a time to pick up the stocks (on which we made a nice profit) or it could be a sign of more decline to come. There's no guarantees in this market. It all depends on your take of the fundamentals. Sometimes there's too much emphasis on the fall and prices overcorrect. Again, it's your call.

The NAREIT conference begins today in Vegas, and the talking heads will be...well...talking. Are REITs still buying back or planning to buy back their own shares? Instead of patting themselves on the back for yet another year of unbridled gains, one thing they certainly talking about is what companies are strong, weak and undervalued in the current market. Here are more thoughts from today's WSJ (subscription soon to be not required, they say).

Traffic Court cites a NAREIT story saying that up to fifty REITs now buying back shares now or planning to do so. Gee, you think they think their share prices are undervalued? Of course that does not mean this is always right. Some analysts think the management should just concentrate on running the company, and sometimes you can also argue that the decreased liquidity can be bad for some shareholders. But I do like the fact that these companies are at least thinking they are a good deal right now, as if the market overreacted.

Why, you ask? Fundamentals, fundamentals, fundamentals. It is simple. Investors "see that many of the companies trade at a discount to their net asset value, a key measure of the underlying worth of the company's real estate value, and therefore represent good deals. They were also encouraged by the REITs' continued access to capital throughout the recent credit crunch." And as the story also says, a lot of people think this is a good time to be a landlord. It also looks like 3Q earnings will be important. Many of these guys stayed out of the private buying frenzy, so as prices correct, REITs and their money (or access to money) may jump into the acquisition game.

Retail Traffic has several good stories in its current issue on the CMBS market continuing to limp along, traditional portfolio lenders jumping in and saying "I told you so" as borrowers say "don't waste time on a conduit" and the private equity slowdown, including predictions that retail REITs will be attractive to that market in the near future as business remains good. Go to Traffic Court and Editor- in-Chief David Bodamer will point you to the relevant stories in his publication.

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.

David Bodamer has not one but two posts about REIT funds and commercial mortgage REITs taking heavy hits. (By the way, if you like it here [and I know this sounds like a shameless, toadying plug and I don't mean it to be], you have to bookmark or link to David's blog. He's on my must-read list, and should be on yours if you care about commercial real estate.) How low can they go? The investors can only take so much pain. And is this and the rest of what we have been seeing panic-driven, contagion-driven, both, neither...or are there other factors out there? The other thing I want to know is how the real estate-driven private equity players are doing. I don't mean the big boys you read about in the paper; I mean the bread and butter people you only know about from being in the biz. If anyone, they might be okay so long as they have stuck to their general investment guidelines for doing deals. I know some are delving into development work because that is where t...

Just when I report that REIT prices are in the tank, we learn that insiders are buying at a rate higher than at any time in the last six years, so you know what that means. Either stock prices will go up or the value of commercial real estate will take a dip. Or are people just enthusiastic about the market conditions?

Well, the long streak of continuous REIT profits had to end sooner or later. I noticed this over the weekend while looking at my own investments, and The Wall Street Journal confirmed it today: REIT returns were down 9% in the second quarter. And it could have been double that but for a rally. The usual reasons are cited: increased borrowing costs, concern about the subprime residential lending disaster causing a spillover effect (though it has not happened yet), yadda yadda yadda. Maybe the uptick will be helpful for the 3Q, but only time will tell.