The Dirt Lawyer's Blog Archive

Assuming anyone is still there, if you work in the development group at Simon Properties, you may want to polish your resumes. While David Simon tried to assure analysts about the dividend, he also said the company doesn ’t plan to begin construction on new projects or major redevelopments in 2009 and there will be little new U.S. retail construction for years to come. “The new development business is dead for a decade,” Simon said on today’s call. “Maybe it’s eight years. Maybe it’s not completely dead. Maybe I’m over-dramatizing it for effect.” That's probably overdramatic and hopefully limited to regional malls. But for big deals in the exurbs? It may be a while. In spite of rosy predictions in this article where I live, I doubt we'll see much dirt pushed this year. H/T Traffic Court .

Magandang Umaga! It is mid-morning Monday in the Philippines and Sunday evening in Chicago, and I just learned the Bears lost , blowing any chance they had of the playoffs. I never expected them to be even close, so I am not bummed out. Now I pin my hopes on a Rose Bowl victory by USC against Penn State. I am still astounded by the amount of dirt being pushed here in the Philippines. We had a terrific visit yesterday to Tagaytay Highlands , an upscale, private real estate development about 60 minutes from Manila. The facilities, security and dirt were all nothing short of magnificent. The views are among the most beautiful I have seen. Gichael de Leon was kind enough to give us a grand tour of the facility, and his boss was good enough to give us a guest pass to the club facilities, which allowed us to eat at one of the many restaurants on site. We chose the American style steakhouse, and my US-imported ribeye was a touch of home 800 miles away. Many of the buildings are cons...

This is exciting for people who live and work in the River West area, and is personally good for me given where my Chicago office is. U.S. Equities has obtained Phase 1 financing from Eurohypo for the long-awaited Metra Market project. The press release says they have $25 million in financing plus TIF money to boot. I'm excited to see the project get off the ground because I honestly thought it might be dead. Congrats! Apparently three anchors, including a French market and a CVS, are on board. I think this bodes well for my work neighborhood, and I look forward to seeing construction begin. When you think about it, the legal issues alone can make a project like this daunting. You have air and structural maintenance rights from the UP to deal with, probably a ton of other crazy title issues to work through with the lender, and on top of all that the fun that is TIF financing. I can see why they went to Eurohypo. I've done one or two deals with them and they are smart....

That is how much Crain's estimates that Teng & Associates has plunked into the Waterview Tower/Shangi-La Hotel development on Wacker Drive. Other than a $20 million bridge loan from LaSalle Bank, that's apparently all cash we're talking here. Neither I nor Crain's has seen any much activity there in weeks, and the trade reports that there are at least nine mechanic's liens that have been filed. (That is an UGLY statute in Illinois to deal with, by the way.) Often that's a sign of major league trouble. But the lender insists that the loan will be done and construction will then proceed. Good. I like staying at Shangri-La in Asia. And, as you probably know, Teng is not alone. I have not heard anything about financing for the Chicago Spire either, but I assume Kelleher and Anglo-Irish (presumably a syndicate) will eventually do something to get that deal done as well. If you look at pictures , the hole in the ground is dug. There's a YouTube post...

I have said time and again that I do not make news, I just report it. So, if I know about a deal (whether I am working on it or not), I don't leak it. Not my job, and I do not even want to think about the privilege and confidentiality issues that abound. (I also don't want my clients worrying about it.) The good news is that GlobeSt.com reported today that a deal I worked on last year, the redevelopment of the New City YMCA property in Chicago, is moving along. Roundy's Supermarkets, which we discussed here recently, has signed an 80,000 sf lease. (Full disclosure: I did not negotiate that deal.) Other tenants are in the works, and, as my friend Jeff Berta says, “Unfortunately, we cannot announce any particular names at this time.” They are still talking about how to deal with some of the residential portions of the property. I'm looking forward to a summer groundbreaking for multiple reasons.

If you could see this now.... I know this property is in Bucktown. I know Bucktown is hotter than hot for development. I know prices can be high there. But $767 per square foot ? I repeat: wow. If the national retailers can come in with high rents, and with parking available on this site that makes it a premium location, on top of a great corner, this could be a good deal. But boy, that's going to be an interesting pro forma. And you still have to get it through the alderman and zoning and into a PUD.

Private Equity Real Estate has a good article (free sub. required) about a trend among private equity players: instead of buying up property or finished buildings or even developments, they are buying all or chunks of development or doing equity participation deals with them. I've seen the latter trend forever, of course. And it is a wise move on their part to do so. Take the undercapitalized developer, bring in a money source with cash to place, give the money partner a preferred return and the developer a nice promote and you have a total win-win situation. Buying the developer itself is an interesting twist. The upside is guaranteed stability. The downside? Are you expected to work exclusively on the owner's deals? What happens to the promotes -- are they there in the form of high bonuses or gone? The flexibility may not be there. But I still find the idea intriguing.

There was a thought-provoking article in the Journal today about whether retail real estate is one the same cliff that residential real estate is. After all, Centro Properties teeters on the edge, Talbots is closing some stores, The Bombay Company has closed and even Starbucks finally admits that it has overbuilt. (How much are rents softening though? I'm not hearing much about this yet.) Just like residential, it depends. It is often hard to generalize national trends in retail. Rule of thumb: Retailers always want to be where the action is. If an area is hot then there should be no worries. But if the area is overbuilt (which you see a lot of -- you may see in some markets absorption problems) or the market is in the dumper, then, well, not so much. I'm hearing of plenty of activity in some markets. And not everyone is slowing down or stopping. I know I read somewhere yesterday that Costco is continuing its expansion plans. Another thing: as the article says, rea...

(With apologies to the late, great Chicago alderman Paddy Bauler....) The Civic Federation feels we need more information and public input on tax increment financing. According to this story , the Federation feels that TIFs are an important tool but need more transparency in how they are done and what they accomplish. In Chicago, "$242.6 million in public subsidies generated $1.1 billion in private investment — a more than 4-to-1 ratio-in the Central Loop TIF district." Not bad, though the Federation questions how much of that development would have been done without TIFs. I have been part of several deals involving TIFs in Chicago, and I don't think any of them could have been done without some help. And they've been, by and large, very successful projects that have brought jobs and renovated blighted buildings. That does not mean I disagree 100% with the Federation. I have seen some deals, typically outside Chicago than in, that have a questionable benefit for...

I'm sure some people will ask: Why are you writing about the acquisition of a Burger King site that will be converted into a Fifth Third Bank in Old Town on a 20 year lease deal? Here's why. 1. I feel like it. 2. I like Burger King, and I like banks. 3. I know the territory. 4. I came up with what I think is an amusing headline. 5. I am slightly jealous of the developer, Josh Levy. He seems to have his act together and he is enjoying what he does: working on his own, taking care of each side of the transaction, working through the business issues and making things happen. 6. I sometimes wonder -- as do some of my friends -- why I am not doing some of this. (Main probable reason: Lawyers are trained to be risk-adverse.)

Fortune this week is echoing my sentiments. Some over-levered homebuilders are in trouble. Face it: You pay your (less, in this case) money, you take your chances. And -- no big surprise -- private equity firms and hedge funds, flush with cash, are ready to buy, buy, buy . Take these smart guys, pair them up with savvy local developers (not amateurs) who really understand dirt, come to the table flush with cash, and voila ! Gold in them thar hills.... Remember, one company's misfortune can be another's fortune - literally. It is not pretty sometimes but it is reality, like it or not.

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?

Just when you thought there was too much retail in the Rt. 59 corridor, guess again. Here's a story on plans for two more lifestyle centers near Fox Valley Mall, one by Summit Development and the other by the Pennsylvania Real Estate Trust. These will compete against Poag & MacEwen's previously announced center going up at 59 and 111th Street. Here's my analysis of the three centers. Poag: has the advantage of time and landing anchor tenants such as Von Maur. The disadvantage is that it is farther south at 111th, although that may be a blessing in disguise as more people are turned off by traffic on 59. (I was at the opening of Fox Valley Mall back in the 1970s, and I don't think I have been the area in at least ten years because of traffic. No thanks.) Summit: not my favorite location at the intersection of Ogden and 75th, but at least it is the southwest corner. This is probably personal bias from way back. I think its biggest advantage is a smaller size...

Now it is Taco Bell and 36,000 sf of spec retail, with a dozen outlots to go. Although I'll probably never go there, this could be a nice little project when done. Maybe it ought to be with the breaks it gets. At first I did not understand why someone would put a retail project at the south end of Kankakee, which, despite protestations to the contrary, is not the center of growth where I live. (Even the Chamber of Commerce moved to Bourbonnais, for Pete's sake.) But now I get it. You attract some locals but you also get regional activity for probably 35 miles south, and these people have money and buy, buy, buy. Super Wal-Mart just has that kind of power, regardless of the fact that today it did not make its numbers and lowered its guidance for the rest of the year.

I am working on a project with Structured Development, LLC at Blackhawk and Halsted Streets in Chicago that is seeking a green building , or LEED ( Leadership in Energy and Environmental Design) , certification from the US Green Building Council. I have been trying to learn about how one goes about obtaining a LEED certification. As I understand it, you have to earn "points" based on about a zillion factors, including proximity to mass transit, green roofs, energy-efficient design and so on. If you want to learn more, read about it with me at this site . I find it all quite interesting and I hope to write more about this in the future.

Whole Foods is getting into the act of building smaller stores or decreasing the size of existing stores, following the trend of Best Buy and Circuit City discussed here previously . This is not at all surprising, though the reason here may be different. You don't buy groceries as much of the Web as you do electronics, but efficient supply chains and smaller demographic markets are good reasons to move this trend in to the grocery realm. The only bad things I see here are: (a) I like large grocery stores myself because of the perception (if not the reality) that you can find more varied product, and (b) developers have to find more tenants to fill space, but that might be at higher rents than you can charge a big box anyway.

I wonder how many lawyers think they really know the business of their clients, and how many really do know that business. I like to think I know the business end of real estate to get by and then some, but I also know there is always plenty to learn. So I try to take time from my schedule to attend business-side meetings when my clients don't mind my doing so. Of course, I don't charge for my time, because I consider it a good education for myself and a way I can add value for my clients down the road. (While clients are usually happy to have me there in any event, it is even more appreciated when they know the meter is not running.) One of my clients was good enough to let me sit in on a two-hour development meeting yesterday, and it did confirm that the learning curve on the business side of real estate is almost continuous, especially in this field. I learned plenty about pending deals and changing strategies, and I know it will pay off down the road when I have to jum...

I wrote previously about a great new project being undertaken at 200 N. Riverside Plaza, a stone's throw from my Chicago office. The Tribune reports this afternoon that William Blair & Co., the local financial services firm for well-heeled folks, is taking 350,000 sf (or 35%) of the building, presumably on a long term lease with rents at $45-50/sf (which I imagine includes a nice tenant improvement allowance for the initial buildout. This means the building is almost certainly a go. The fact that the venture is apparently being backed by pension funds is also helpful because it makes the project largely immune to tightening in the credit markets. I'm looking forward to seeing this project come online, albeit probably in four years or so.

This is a trend we'll see even more of as additional office space comes online and older space becomes functionally obsolete or just can't be leased. Perhaps my favorite project in Chicago is 55 E. Monroe , because people I know of (Walton Street Capital and Glenstar Properties) are doing it and because I used to work at the building. The syndicated construction and mezz loans (still making this a highly leveraged deal) have closed and I gather the conversion should start soon. Only the higher, view-protected floors are being converted, and again, while there is a glut of condos on the market, this building screams location location location. If you have anything but the purest west view, the scenery is spectacular, and, because of where the building is, that view is going nowhere. And the area itself, right off Michigan near Millennium Park, is hot. I will be interested to see how they handle the ~45,000 sf floorplates with condos and the interesting shape of the building...

Wolf Point is a parcel of land right at the confluence of the North and South Branches of the Chicago River. As the crow flies it is about 300 yards from my Chicago office. The Kennedy family owns the dirt, having retained it after selling the Merchandise Mart and the Apparel Center to Vornado. The Kennedys, in connection with Hines, L.P. (the office developer) and Habitat Co. (a well-known local residential developer) have revealed plans to build three buildings on the four acre site: an 89-story tower with condos, apartments and hotel rooms, a 40-story building with a million sf of office space and a 56-story condo tower. Cesar Pelli is the architect. Here's some random thoughts on the project. Notwithstanding the glut of hotels and condos, this project could do very well just because of the spectacular location. You can get an idea of the types of views by watching the Nicolas Cage film The Weather Man . And who knows what the market will be like in five+ years anyway? This is...