The Dirt Lawyer's Blog Archive

There's a lot of talk today about Maguire Properties handing back seven buildings to the lenders (one of which is another real estate company that bought the debt at a discount). The "imminent default" magic words language might also mean Maguire is trying to get into the hands of the special servicer, which leads to a workout or to a deed in lieu of foreclosure or something. Maguire bought these buildings at the top of the market. Some bloggers are calling this a " commercial real estate death watch ." After all, "Lending hasn’t come back, prices are plummeting and those that poured funds into the sector during real estate boom are getting killed by high vacancy rates and falling rents." While I agree we are waiting for some properties to "die," in a sense, I take a more phoenix-like perspective to the whole thing. After all, the property is reborn by its transfer to a new owner. So I like to think of this as the bottom of an evolution...

There is a very interesting story in today's WSJ that explains the incredible complexity of huge, multi-site deals, foreclosures and various investors in CMBS. This story is about the John Hancock Tower (in Boston, not the iconic Chicago building). The tower was part of a seven site deal of a fund of Broadway Real Estate Partners two years ago. The deal's now in default, according to the story. Back in the old days, when a deal went south, you had one lender, or maybe a syndicate of lenders with interests that were usually somewhat aligned. And you sat at a table, did conference calls or ever wrote letters back and forth working out the loan, or you proceeded to foreclosure. Not so anymore, thanks to the complexity of CMBS. If you are a regular reader or know the business, then you are aware that CMBS has various tranches of debt, with senior tranches having the least risk (and lower return) and junior tranches having more risk but higher interest rates. The same is true ...

Tom Corfman's Crain's piece today predicts: Donald Trump’s lawsuit against the menagerie of construction lenders for his riverfront tower is likely to be followed by more pre-emptive strikes by other developers. Amid the prolonged credit crisis, such lawsuits could become common. We've heard all the stories, so I won't bore you with lenders turning the screws on their borrowers. (Hey, the borrowers did it to them a few years ago, let's not forget.) There were two opinions given about the lawsuit: “We’re in an economic crisis, yes, but does that constitute force majeure?” said real estate attorney James Fox, a partner in the Chicago office of law firm Quarles & Brady LLP. “Only crazies would do that.” The force majeure claim is “a stretch in this case, but it gave him a toehold,” said Mr. [Marv] Romanek, managing director with Northbrook-based Romanek Properties Ltd. I wrote about this here on the 8th. The gut reaction was similar to Mr. Fox: economi...

A couple of years ago, we were all riding a crazy, insane wave of deals that no rational person thought could go on forever. Confidence was at an all-time high. Just as we had the highest of highs, now we see the lowest of lows. Record optimism has turned into record pessimism, or so says the latest DLA Piper State of the Market survey. But let's think about this: is this any less insane than where we were a few years ago? Some say yes. Take this Business Week post comparing what is going on to a run at the bank. Just as we may have overvalued some properties and mortgage pools, are we now over-discounting them? It is a thought-provoking comment, at least to me. I'm still torn about the bailout being proposed. Very smart people tell us that without it we could be back in the 1930s, but, at the risk of being political here, I've always been of the mindset that government involvement generally makes things more costly and less efficient. Here's a rational post ...

Because Las Vegas has apparently rolled snake eyes . The story will tell you all about the woes of CRE in Lost Wages. You might be able to make a killing if you buy at the right price from a lender and can hold out long enough for things to turn, flip the deal or sell and lease at lower prices because you are all in for less money than the first guy. LV is not the Rust Belt, after all. Legal stuff? Think about mechanics' liens, title insurance and survey issues, zoning, liquor license and related issues. I won't even venture to think about gaming. Oh, one last thing that may sound silly. Water rights. They keep saying there's not enough water to go around, and how would you like to be in after the camel's back is broken?

Here's a video on Business Week's website showing an actual auction on the steps of the San Diego County Courthouse, a place I once knew well. Yes, there are auctions once in a while for commercial property. The last one I worked on was a few years ago, for a prominent local investment company that purchased two apartment complexes in the Southeast. The total purchase price, as I recall, was in the mid eight figures. And yes, the client flew down to the courthouse and literally bought the property on the steps. It was very exciting. The key to these deals is doing as much due diligence as you possibly can, since you are expected to buy the property on an absolute as-is basis, and with a closing occurring almost immediately. So you'd best order minutes of foreclosure from your title company, get your hands on a survey and dig into whatever information you can find. You'd better also cash, a good line of credit or have a lender or money partner on board to do thi...