The Dirt Lawyer's Blog Archive

I'm under the weather and also under the gun on several projects (it never fails), so just a few quick thoughts for the day. On the gloomy side: In case you missed it, commercial and multifamily loan originations are in the tank . Mezz lenders are getting slaughtered , too. What is it with Chicago and luxury Asian hotels? First the Shangri-La has its problems, and now it looks like the Mandarin Oriental may not get off the ground, foreclosure and all that. The speculators say it is a matter of time, but my thought is that people will try to buy time until October for obvious reasons. And even the Fed is talking about CRE problems , although the hope is that the problems will not be as bad as the early 1990s. On the less gloomy side: Rob Bagguley of Transwestern has a great post at CPN about the encouraging signs of the market. I have to be reminded that there are good things going on and I thank Rob for doing so. Anecdotally I am seeing a slight uptick and thinking that perhaps...

I'm getting fed up with government hypocrisy. Case in point: companies left and right are being criticized for holding "lavish parties" for key salespeople, or retreats, conventions or other corporate outings. I understand why. But I also know that we could be hurting the hospitality and convention industry more and more by canceling all these events. But if our government officials do it? No, that is a "serious working session." Both parties had trips to nearby resorts, with different sources of money. Republican lawmakers paid for their travel and lodging [at The Homestead], mostly with campaign funds. Staffers' bills and the rest of the tab was picked up by the Congressional Institute, which is funded by 54 "patrons," including General Electric Co. and the National Association of Home Builders. About 45 lobbyists attended a dinner on opening night. A few days later, as the stimulus bill inched forward, Democrats held a two-day issues conf...

From Globest.com : With the presidential inauguration less than 24-hours past, the real estate community is already seeking out signs on the direction President Barack Obama will take TARP. One likely development that will be welcome to CRE is a greater focus on accountability for banks that choose to tap the billion-dollar-plus program. Specifically, banks that participate will be required to account for the money at a more granular level. Let's hope so. Money flowing is what will work, in my humble opinion. If banks are "stabilized," as the story says (yesterday's plunge notwithstanding), then let's solve the real problem. No going back to cowboy lending, of course, but let's make the rational deals happen. If you want our money, do something other than hoard it.

Business Week's Hot Property blog has a good post today about a CRE bailout. And perhaps we should all stop calling it that. The NAIOP's proposal is: loan guarantees from Treasury and the FDIC. And they point out this is not unlike 2001-2002, when we all went through the wringers of terrorism insurance. That was a royal pain but we got through it thanks to the government backing. Do the same with CRE and it could be a win-win situation. As the story points out, this is more a liquidity issue than an overbuilding one (at least for now...let's see what retailer goes under today ), and guarantees instead of cash could go a long way toward getting critical refinancings done. Without that, who knows what? So, let's spin this...it is not a bailout. It is not a bailout. Nice mantra, huh?

The New York Times has a gloomy piece today on the cycle of layoffs to subleases to vacancies to building owners not being able to pay the mortgages, thus leading to a potential "ticking time bomb." According to the story, Many commercial property owners will face a dilemma similar to that of today’s homeowners who cannot easily get mortgage relief because their loans were sliced and sold to many different parties. There often is not a single entity with whom to negotiate, because investors have different interests. By many accounts, building owners have been caught off guard by how quickly the market has deteriorated in recent weeks. Rising vacancy rates were expected in Orange County, Calif., a center of the subprime mortgage crisis, and New York, where the now shrinking financial industry dominates office space. But vacancies are also suddenly climbing in Houston and Dallas, which had been shielded from the economic downturn until recently by skyrocketing oil prices and...

We lawyers like to joke about eminent domain and the high unlikelihood that this will occur, especially with retail malls. Of course, thanks to the horrible Keto decision, you can take someone's house to build a hotel. That's because we are not in Venezuela. According to Peter Maclennan , Hugo Chavez apparently decided he didn't want a shopping mall to be finished and opened, so he announced that the mall will be "expropriated," or condemned. Malls are not socialistic enough, but a hospital or school is all right. No, I do not see this happening in the US, even with an Obama administration. :) Seriously, though, I guess this is a reminder never to set aside anything as an impossibility. I have found from experience that when you say, "It'll never happen," it often does.

Maybe I'm just a dumb dirt lawyer. But I really, really don't get this . A big criticism I had of the government "stimulus package" was that banks would have no obligation whatsoever to actually go out and lend money again. So what are banks planning to do with their government investments? If you said "lend money," guess again. No, they plan to use the taxpayer-financed infusion as cheap money to buy up banks that are weaker. As the story says: If the banks use the government funds to pay for acquisitions, it could prove controversial. Taxpayers essentially would be footing the bill as strong banks gobble up their weaker peers. Such acquisitions probably would provide less of a boost to the economy than would new bank lending. Controversial? That's putting it mildly. Scandalous is more like it. And the impact on the dirt market? Well, what confidence there was about loosening credit may fade. Somebody who understands economics please tell me: h...

So, the latest rescue plan for the economy is that the government may directly inject capital into banks in exchange for an equity stake in the bank. Wow. Now that's a recapitalization. I guess Bank X better not consider having any lavish retreats. Of course, much as the AIG scandal irritated people to no end (including me), if you think the government does not spend money foolishly guess again. But does this end free-market capitalism -- a cornerstone of the greatest nation ever? I don't know. It is more big government and that bugs me. It will, however, bug me less if it helps free up the credit market and it gives taxpayers an investment stake in the banks the government bails out. Perhaps the depth of what is happening justifies this. But it also makes me want to parrot the title of this post : "Bankers of the World, Unite!"

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 ...