The Dirt Lawyer's Blog Archive

John Reeder has a good blog post on the Simon acquisition of Prime Outlets. I agree with his thoughts on market timing. I think buying before market bottom is fine as long as the numbers work. And Simon obviously believes that. If I recall, Simon had billions of dry powder. This is an 80% cash deal, so there is money left for other acquisitions. While valued at $2.33 billion, Simon is only paying ~$560MM cash and assuming debt and preferred stock obligations. Todd Sullivan says that antitrust problems may have played a role with multiple bidders and that Simon is out, with Brookfield the main player now. His story also says Brookfield would go the JV route with GGP, which is much more palatable to management. Makes some sense. And Brookfield has also apparently become a " meaningful creditor " of GGP. (I believe Simon also owns some GGP debt.) Simon may or may not be out, Brookfield may or may not be in the lead, and I would still not be stunned if someone else i...

Sometimes real estate lingo sounds like an episode of The Sopranos. For instance: We gotta take a haircut on this deal, Paulie. Oh, just whack the tenant. Is (Broker X) a friend of mine or a friend of ours? We're gonna take out the bank. It's what we hafta do. Okay, maybe I am exaggerating. But taking out the bank is Joseph Freed's goal and its best alternative to a negotiated agreement since any such agreement at this point seems impossible. Freed is looking for equity and debt, according to Crain's today. You can read all about what is going on, including a hearing next Friday. While the receivership order was entered, I think based on the story that the order was stayed until the next hearing, by which time the receiver can take over upon presentation of a bond and insurance. Now, is Freed going up for interim appellate relief in the meantime? I haven't read the order in the case so I don't know whether the so-called magic words regarding such an appe...

A year ago , I said I would put a prediction in an envelope about Simon and GGP and see if I was right. Let's open it. "Simon will end up owning part of GGP. But a team up with Westfield makes the most sense, especially if they do try to take in the whole company. This was done before so it is familiar territory for them." My grade? Incomplete. Simon now is exploring ways to use its dry powder to buy some or all of GGP. My bet is still on some, with some interesting lender negotiations perhaps to occur. I noticed Westfield, which also has plenty of cash, was also mentioned in the WSJ story but apparently hasn't hired advisers. (By the way, that means bubkes, in my humble opinion.) So don't be shocked if we see another Rodamco-style deal .

So, more details are out on Block 37. Work from the awesome team at Crain's is that apparently Muvico walked from its anchor lease at the property but offered to come back at better (read: cheaper) terms. In other words, it looks to me like the old tenant cramdown. Freed, not wanting to lose the deal and presumably sensing it could still make money, takes the deal to Bank of America. Why? Because the lender as a rule in deals like this has the right to approve major leases or material modifications to existing leases. Sometimes there will also be specific criteria under which the borrower can enter into leases without lender approval. And Freed is telling us the lender said no, and did so "improperly." You can read the story to get the gory detail being alleged in Freed's motion to dismiss, the gravamen of which is that it thinks the banks wants to capitalize on Freed's work to lease up the property and profit from it. Now, the lender can argue that it did ...

Is this a classic case of no good deed going unpunished? Or is it just a lender enforcing its rights, albeit at an awkward time. Bank of America, as the lead lender, is foreclosing on the retail portion of the long-awaited and oh so troubled Block 37 in downtown Chicago and will be in court this afternoon to have CBRE appointed as a receiver to keep the project going, including finishing construction. Unless there are some defenses sitting out there that we'll hear about, legally they presumably have that right, and even though Freed says construction could grind to a halt, surely the loan documents contain assignments of the construction contracts, architectural drawings and all that so the lender could in fact take over the project. (Hopefully none of the retail deals will allow the tenants to pull out in the event of a foreclosure or bankruptcy or something, or the project gets done in time to prevent triggering the right to walk for failing to finish landlord construction....

Here's a thought provocative enough to get me to post on a Sunday. RevPAR and occupancy are down so much at hotels that at least one industry mogul says this isn't cyclical: What the U.S. hotel industry is experiencing today isn’t simply the downside of a highly cyclical business, emphasizes Thomas Magnuson, but rather a massive fundamental shift. “It’s a reset,” declares the CEO and principal of Magnuson Hotels, ranked by Inc. Magazine as the world’s largest independent hotel group. So combine occupancy drops with supply increases and you have a whole new paradigm. Now for consumers that may be a good thing, even for the long term from a pricing perspective. You also have the possibility of some shutdowns, a ton of foreclosures and an even larger expansion on mom and pop owners buying properties on the cheap and managing them close to the bone to eke out a profit. But let's look at this from a more macro perspective: could this thesis be expanded to the sector as a who...

Sorry, I could not resist that head to my post. This article sums it up pretty well. Lenders want their money back from GGP, in full, and now. GGP wants a seven year extension and favorable rates. The judge has been siding with GGP so far, from what I can tell, and the bankruptcy guru of gurus said it best when commenting on the judge's refusal to take some of the properties out of the BK: "The judge encouraged all parties to commence negotiations as soon as practicable in light of the decision," said James Sprayregen, partner with Kirkland & Ellis LLP, General Growth's co-counsel. Some think GGP's best outcome is an acquisition by Simon and/or Westfield, both of which companies I understand have dry powder. This has been done before, especially in combo, as you may recall when Urban Retail/Rodamco's assets were split up by a troika. Now you could have more antitrust problems with consolidation and all that. Others want to see the company survive, mea...

You can't be serious. The way this case is going, and now with a plan delayed for quite some time, we see this : [GGP] at a hearing said it was considering ways to treat some of its subsidiaries as a single debtor and override their status as separate companies, according to a transcript of the hearing. Perhaps even more stunning is this howler: "This was a surprising development that was probably saber-rattling on General Growth's part," said Daniel Rubock, a senior vice-president at Moody's, who attended the hearing. Saber-rattling, yes? But surprising? Not in my humble opinion, as I think I alluded to some months ago. From a tactical legal standpoint it makes a lot of sense to me, and I know I am not alone in saying that you could see this being at least a thought in the back of someone's head. I readily admit to happily not being an expert in substantive consolidation, but the mere fear of it in the eyes of the lenders -- even if it is an uphil...

That's what lenders want . They want out of the quagmire so they can foreclose or do whatever they have to in order to protect their secured interests. Here's a great summary of what the lenders think: Attorneys for Metropolitan Life Insurance Co. and KBC Bank N.V., a unit of KBC Groep N.V., wrote in their motion to dismiss entities related to White Marsh Mall in Maryland: "It is clear that the petitions of the White Marsh debtors were not filed with any reorganizational purpose; they were filed solely to obtain leverage and a tactical advantage in any future efforts to extend the maturity of the loan." General Growth legally created its malls as special purpose entities (SPEs), separate from the parent company. This prevented it from being on the hook for any of the SPEs' obligations. "In determining to underwrite the loan, MetLife and KBC relied on the separateness and credit worthiness of the borrower and the underlying property, especially be...

Maybe I am just getting old and confused. I thought Bill Ackman was saying before that bankruptcy was the solution to GGP's woes . Now he is saying that the answer lies in a seven year debt extension . As we know, management was already trying to get extensions before the filing. Or was his real game plan a BK and then a forced extension to the creditors? You tell me, because otherwise I will never know. I do know this: I hope Ackman's right about the bankruptcy judge for his sake and for others, including the human beings who still work there. I'm not sure a liquidation would be pretty right now. Actually, I am sure it would not . And if he is right, Ackman says that even at a 9.4 cap (compared to what - a 5.3 on the EOP portfolio?) he stands to make a 1300% cash on cash return. Nice money if you can get it.

Now that I have a few minutes, I want to comment on a great story in Friday's Journal about the General Growth Properties bankruptcy. When GGP filed its Chapter 11, it also dragged 166 individual malls with it. How so? Each mall is owned by a special purpose entity, demanded by its lenders to try to prevent what actually happened. And this could have major ramifications throughout the real estate world. Why? Because (a) lenders thought the structure of the deals would prevent this from happening; (b) GGP wants to take the cash flow from the deals into general operating funds for the company rather than into paying these otherwise-performing loans -- in short, use the good malls to prop up the dogs; and (c) get some leverage in the bankruptcy. For those of you saying, "Huh?" here's an explanation: In past years, to get the malls' mortgages, General Growth had set up 166 "special purpose entities" whose sole purpose was to borrow money. SPEs are attr...

GGP says it does not want to sell core assets in its bankruptcy. But Retail Traffic correctly points out that many industry insiders don't think that can happen. And that makes sense to me. Look at the LTV of its portfolio and the amount of debt the company has to restructure. In any event, read for yourself and make your own conclusions. And sharpen your due dilgence pencils.

Well, it happened, but not without making a good run at trying to stop it. General Growth Properties filed for Chapter 11 bankruptcy protection this morning. I am reading this: "The filing affects properties owned by the company but does not impact its third-party-management business and some centers owned in joint ventures." Here is the press release that says " broken credit markets " require this filing. (Well, that and levering yourself to the hilt. Wonder how certain former CFOs feel today.) Now, not all the malls are in this 11: Of the 158 regional centers included in the filing , some high-profile properties stick out, such as Ala Moana Center, in Honolulu; Faneuil Hall Marketplace, in Boston; and the Grand Canal Shoppes at the Venetian and Fashion Show Mall, both on the Las Vegas Strip. Of the about 60 properties that aren’t part of the filing , some big-name centers are Water Tower Place, in Chicago; Oakbrook Center, in Oak Brook, IL; and Glendale...

Or so says Wilmer Cutler Pickering Hale and Dorr LLP, the lawyers who say they are representing a bunch of bondholders demanding repayment...or else. You can read about it here and here . There are some people who might be happy about this, including possibly William Ackman . That said, I find this quote telling: The bondholders' action pushes General Growth closer to a bankruptcy filing but doesn't mean one is imminent. A trial spurred by the bondholders' lawsuit likely would take months to play out. Meanwhile, General Growth previously pledged to work with its unsecured lenders to craft an out-of-court restructuring of its balance sheet by the end of June. If General Growth meets that commitment, the trial might not be needed. Is there more here than meets the eye, or is this just a desire to be repaid? (H/T Traffic Court .)

You may recall reading my post the other day about landlord's coming up with creative uses for vacant space, including indoor surfing. Well, the Llenrock Blog has taken this one step further with an informative and humorous post on creative use, to wit: This concept seems all to familiar to retail landlords of regional malls, power and lifestyle centers. The only thing worse than a rainy day to a carnie is a dark store to a landlord. And landlords aren't being all that shy about it either. A recent article in the New York Times showed that a burgeoning trend to fill up the mounting oceans of vacant space is, well, water. I'm not really into indoor surfing, but if a landlord let a tenant put in a temporary indoor pool (how you do that is beyond me, though, because of the dehumidification costs), I'd be all over it. But I am dreaming because of the damage to the space, the objections of tenants, the cost, the insurance and a million other legal issues. I can tell you...

Desperate time require desperate measures. And with mall owners facing vacancies, you'll see just about anything. Community colleges, multi-level anchors with two users, temp stores, medical offices....but surfing? Yes. That is not a typo. Read here . It makes lot of sense, especially here, and also because it appeals to the young demos that retailers covet. Leave it to the dirt industry to find ways to use space creatively.

It is hard to be objective when you know people who work at a company. Face it, you don't want friends getting fired. So I'll admit I am pleased with each passing day that I do not see a Chapter 11 filing on GGP. I also happen to think Adam Metz can turn this around. According to today's Journal , even though the company failed to get the consents necessary to get a break on some bonds, "a bankruptcy filing isn't imminent for the mall giant, according to people familiar with the matter, and General Growth's ability to remain out of bankruptcy shows the unusual dynamic between lenders and distressed companies in the recession-ravaged commercial-real-estate market." As I said a few weeks ago, there's not much to be gained right now for the creditors by forcing an 11. If the creditors did not think this was mainly a liquidity issue, that GGP could survive and that they could stand to make more by riding it out than going to court, believe me, they...

GGP is asking for another week to extend the forbearance deadlines on five sets of Rouse notes. Two have made the threshold and one is on the verge. But two others have a way to go. Will these holders try to extract some extra pound of flesh from GGP? Will this cause what I don't want to happen to happen anyway? I would think there is some negotiating or talking going on or we probably would have seen something bad happen over the weekend. Only time will tell.

I guess we will see . [General Growth's] most critical deadline is 5 p.m. Friday, when it hopes the majority of its bondholders will have agreed to refrain from demanding payment this year on $2.25 billion in bonds. If that effort fails, General Growth says it might need to seek Chapter 11 bankruptcy protection. Metz and Nolan are cleaning house , too: Leaving General Growth this week are Jean Schlemmer, chief development officer; Alex Berman, senior vice president of the mall owner's international division; human-resources chief Judy Herbst; and investor-relations director Tim Goebel. None returned messages seeking comment Thursday. Their departures follow that of Thomas D'Alesandro, General Growth's senior vice president of development, who left Feb. 27. And the Tribune reports that a Chapter 11 could occur within hours absent a reprieve: This Chicago-based real estate giant has stopped paying some of its bills, and has avoided bankruptcy so far only because the len...

Here is the press release announcing GGP's forbearance request for the holders of Rouse unsecured notes. The company wants until the end of the year to reorganize and repay. The company is looking for similar extensions on other facilities. The thought has to be that lending will turn around because of all the monetary infusions and if it does not by year-end, there's going to be a whole lot of trouble going on. So what do you do if you are a lender? Agree to the forbearance in the hopes you will be paid off at year end, or let this go into BK thinking this is your best option? I'm not an expert on lending and banking, but if I were the lender I'd probably rather roll the dice with a forbearance than roll the dice in bankruptcy court. This means being an optimist about the economy eventually turning around, and while it eventually will you have a question of timing. It is when, not if. Others may (respectfully) disagree and I welcome those thoughts.