The Dirt Lawyer's Blog Archive

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...

Spot on analysis here on whether stimulus will really help commercial real estate. It could help because it will improve fundamentals, employment and economic growth, which could help the office and apartment sectors., and maybe the retail sector if people start spending money again But liquidity has and remains the big issue. So says Richard Green, director of the USC Lusk Center for Real Estate: "If the Geithner plan works, which is a big if, what you'll see is that lending will come unstuck," Green says. However, he adds, "If banks start lending again, that doesn't mean that commercial real estate is out of the woods because there's an issue with what's happened to property valuations." Bingo. All this spending may not a direct impact on CRE, but there could be an indirect impact. Of course, there is one thing that an indirect impact takes: time. And with loans coming due by the bushel, is that something we have right now?

That's what I am reading right now : If the shortfall does materialize, it will lead to increased distress in the commercial real estate debt market and further downward pressure on values, which is what Foresight is predicting. Regardless, Foresight principal Matthew Anderson expects the commercial real estate debt market to show minimal net growth during the next decade because “the high volume of loans maturing in the multifamily and commercial mortgage markets will absorb most of the origination volume for several years.” And there's much to be said in support of this theory: tight credit and loan after loan coming due in the next three years, with potential equity needed to make the deals. Scenarios? Bargains for people with cash, major workouts because banks do not want these properties, government intervention or an uptick in lending. Those are the ones on my plate. I don't think we can afford a decade of trouble. The commercial market often lags the residential...

So where is ProLogis going - back up, or to toast city? We saw its stock pull a GGP last year, going from ~$66 to ~$2, and it is now trading in the $6 range. CPN has a story today about the company pocketing money from selling its China operations and other activity that is making strides to reduce debt. The story goes on to talk about leasing activity, executive changes and everything else the company is doing to improve. By the time I finished the story I felt like this: link . On the other side, you have Richard Woon , who was bearish on ProLogis last year and presumably made a lot of money going short on the company. Good for him! I need to do that more, but I do not have Richard's analytical skills. His takes on the company are here ; while he has a new target now I'm sure he still has strong feelings about ProLogis. (And Richard, if you are reading, I welcome you to chime in with any thoughts.)

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 read a story about the stalled Spire in Crain's today that just reminded me why it is so important to get lending moving -- and hopefully the plan announced today that should have been announced in November or on January 21 will do so. It is, of course, that old domino effect. A project is on hole, people lose jobs and cut, and so on: "If there's no buildings going up, what do you do?" said James Connolly, a Laborers' union manager. "Prepare yourself because it's going to get worse before it gets better." Construction workers are accustomed to boom-and-bust cycles but this downturn appears deeper and longer. The impact of lost wages of $35 to $40 an hour ripples through the economy. "People out of work, people lose their homes, people lose their hospitalization, people lose all their benefits," said Tom Villanova, president of the Chicago and Cook County Building Trades, which covers 100,000 construction workers. "It'...

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...