The Dirt Lawyer's Blog Archive

Yep. Yesterday, advisers, today, a Chapter 11 filing for Tribune Corporation . Even the Grave Dancer, much as I admire him, can't win them all. "Over the last year, we have made significant progress internally on transitioning Tribune into an entrepreneurial company that pursues innovation and stronger ways of serving our customers," [Sam] Zell said in the [press] release. "Unfortunately, at the same time, factors beyond our control have created a perfect storm -- a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt," he said. The Journal's Deal Blog tells us this was never a good idea and people said so: To many people, the math never worked from the beginning. Tribune’s revenues had been falling precipitously for years. Zell offered a generous $8.2 billion offer for Tribune to win against two other billionaires halfheartedly bidding for the company . From the beginning,...

Just when you think the corner is near on spreads, a default rumor causes a(n irrational?) panic. AAA rated commercial mortgage-backed bonds widened about 37 basis points to 305.57 basis points more than 10-year swap rates during the week ended yesterday according to data from Bank of America Corp . But, as Deal Junkie rightly points out: The good news is delinquencies on commercial mortgage bonds was 0.43 percent in July, compared to 41.7 percent for subprime home loans. And real estate investor Sam Zell still believes that opportunities are in the debt . Go ahead. Bet against Sam. I triple dog dare you. Be careful when investing, by the way...you might shoot your eye out. What's most worrisome is the inability for some deals that would -- and even should -- have been no-brainers are not getting done, at least not in a manner timely enough in my view But only the gloomiest of pessimists thinks this is going to be a 10-year problem. I'm not gonna crystal ball when what I c...

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.

Think about it. We had lenders jumping all over each other in pricing while Treasuries, about the safest investment there is, were at higher rates. Now interest rates are back down. And CMBS is not exactly at record-high default levels, is it? (Granted, the market lags, but get real.) So the ever-quotable Sam Zell is saying that it only makes sense for institutions to return to the CMBS market, and that he is seeing the first steps of an easing in the market. This is especially true if lenders hold to the 6% floor we've been hearing about, as those are the kinds of numbers that allow money to be made. And spreads are down to boot. Does this mean the downturn's over? Heck no. The Germans have not bombed Pearl Harbor , and I think you'll see some interesting shaking up on some properties or developments being pushed back , regardless of cache or quality. But if buyers and developers can get reasonable financing, that's a sign that we're back to reasonable tim...

Sam Zell calls the estimated difference between the $6 billion Harry Macklowe paid for the EOP Manhattan properties and the $7 billion he paid for them "Macklowe stupidity.'' Ow. You must have a thick skin to play at that level. While people do not want to overpay: The pace of commercial real estate deals may pick up as U.S. pension funds such as the California Public Employees' Retirement System move money into real estate, Zell said. "I don't think they can afford to sit on the sidelines and get 2 percent from Treasuries when they need 7 percent'' of returns to pay retirement benefits, he said of the funds. That could lead to an "opening'' in credit markets. Makes sense to me, but we have to see what the rest of the dirt world says and does.

Even though he sees the U.S. residential market turning around, Sam Zell's now also saying that he's not seeing significant opportunities for real estate in the developed world. His bet right now? Housing developments in Egypt, Chile, Mexico, China and Brazil. I'm guessing he means the mega-returns that opportunistic guys like him want. But here's the somewhat better news: "I don't expect to see any dramatic change in cap rates or the viability of high-quality office investments in the U.S.", he said, adding the pace of new developments had slowed sharply since the summer, which would help keep a lid on supply. Yes, there is less demand right now, but supply is not what it was in the 1990s. That does not mean that will not change in some markets down the line (Chicago in 2009-10, for instance), but we also can't crystal ball the economy two years down either.

I won't. Sam Zell predicts a spring recovery in the housing market. Is he right? Only time will tell, but again, I don't bet against Zell. How does this bode for commercial property? I think it'll likely be good for retail because rooftops mean a lot. The apartment sector? Not so much. And to be honest, I am not sure whether that will impact office or industrial, so just watch and see like I will, or give me your own predictions. UPDATE: if you want a great analysis of the residential perspective, read Jeff Brown's take .

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...

I have said before that I think Sam Zell is just an mega-genius, and that it was reaffirmed by the EOP sale to Blackstone. Never media-shy, Sam in lectures at Wharton is saying that we have a confidence crisis going on, not a credit crisis. If you read this blog, you know I agree. According to the Forbes story: "We're not really in a 'credit crunch.' I think we're in a 'confidence crunch,'" said Zell, funder of the Samuel Zell and Robert Lurie Real Estate Center at Wharton. "I would argue the excess liquidity that existed eight weeks ago still exists today. It has a different risk premium on it, but the actual amount of liquidity has not changed." Zell said the slump should come as no surprise: "Over the last three years, people were flippant. They bought anything they wanted and were proud that they didn't do due diligence. I think they have all been chagrined and are scared out of their minds." Bingo. Sam also made me th...