The Dirt Lawyer's Blog Archive

I am in a obscure quotations mode today, so please excuse me in advance.  No, I am not about to start brushing up on my Shakespeare or start quoting him now. (In fact, I'm not sure I ever even seen Kiss Me Kate all the way through.)  But this weekend I had to think about what I have seen the last few years. I know economists have their own definitions of recession and depression and all that. But I also know that you can cook the books on statistics such as unemployment.  (This is nothing new, by the way .  And thank you, Benjamin Disraeli.) We are seeing more talk of depression-like problems: the so-called 99 weekers (a term I first saw here ), a real unemployment rate that is higher than the statistics indicate as people just plain give up on looking for work and thus are no longer in the stats, companies that refuse to spend the money they are making and declining to hire out of a fear of higher taxes and low demand for products (aside: I don't know a single ...

Both, probably, but more good than bad in my opinion. Depending on what you read, CMBS delinquency rates are at an all-time high of 8.71%.  This article citing Trepp LLC is the first I came across. And I remember when I said, oh, that 2.1% default rate is not so bad.  And Fitch is telling us that the default rate is 9.48%, even closer to the 11-12% predictions that have been out there.  So that is bad news, yes?  Some call it part of the continuing slo-mo crash .  Yes and no. The good news, if you look at the chart, is that the upward trend is flattening.  Is that a sign of moderation ?  Maybe.  But let's not forget that there is a ton of CMBS debt coming due - a trillion dollars of it over the next five years.  Again, good and bad. But what I find most encouraging is this: loan mods .  According to Trepp we have had more mods in the first half of 2010 than in 2008 and 2009 combined.  So the servicers are getting their acts toget...

The one thing we know is this: markets hate uncertainty.  And after reading this CoStar piece about Dodd-Frank I can see why there is a lot of angst and uneasiness among some investors in the commercial real estate market.  It is going to take time -- and a lot of manpower and legal analysis -- to sort through yet another behemoth set of laws, rules and regulations.  While I am not a deal guy, here's what I am thinking, and I encourage you to critique me or even tell me I am dead wrong. Pricing and cap rates will have to be lower than they were to sustain any good returns on deals.  If the days of what I liked to call "cowboy lending" are over, that is fine.  I was never a big fan of it anyway as a lawyer.  But we need to adjust to the fact that with lower LTVs on loans and stricter underwriting (including the requirement that lenders keep at least 5% of all their loans on the books as so-called "skin in the game") and more documentation (yay, lawyers!), t...

According to this nicely-done New York Times post, not in real estate: Private equity real estate fund-raising fell in the second quarter to its lowest level since 2004, suggesting that a recovery has yet to take root in the investment property market. For years you kept hearing about everyone having "dry powder" but not using it.  Is that like the Mutual Assured Destruction theory of the Cold War?  I think the story correctly states that many lenders are wary to lend money to PE-backed concerns.  But it could also be --as the piece correctly mentioned -- that these entities raised a lot of money in past years, are looking for the right deals carefully and slowly; so looking for more cash right now when you are not deploying what you have is not necessarily a good thing. The deals I know about are often all-cash ones, perhaps or perhaps not levered after closing.  That just makes a take-down of the dirt so much easier when you can do that. The piece also talks abo...

Why are so many brokers and lawyers mortal enemies?  I cannot being to tell you the stories I've heard about broker x and lawyer y fighting with one another to the detriment of a deal.  I think there are two main reasons for this: (1) lack of communication and (2) interference. I had a great conversation with broker and fellow blogger Duke Long yesterday that made me want to write about this. In many deals if not most, brokers are at the table before the lawyers, negotiating the business terms and working the deal.  That said, smarter client in my humble opinion get legal counsel involved earlier, such as at the LOI stage.  They often take ownership of the deal, guiding it through for the client and to collect that commission.  Sometimes we lawyers laugh at the brokers, thinking that they do nothing to earn their money -- which, by the way is way too much anyway since it is so much more than the legal fees.  That happens sometimes, but not as often as lawy...

The protestations that it would not materially impact the industry notwithstanding, a lot of my friends and colleagues in the commercial real estate industry are breathing a sigh of relief.  Once again, provisions taxing so-called carried interest as ordinary income will not be passing Congress.  Well, at least that's what everyone is saying.  Remember, health care was dead too at some point and we all know what happened there. I understand the appeal of the law -- get those hedge funds! But it also goes after real estate with a vengeance.  Take your small to mid sized real estate developer who takes a risk by working on a brownfield or on a project in a marginal area or with IRRs that only work because of the nature of the investment.  So, those borderline deals go away, as to the leases, the sale, the construction jobs, the employment that comes with the finished real estate.  You get the picture.  What seems reasonable on the surface is a devil in t...

An excellent commentary from PERE (reg. req'd) on the whole carried interest situation can be read here .  Like politicians do they call it the “The American Jobs and Closing Tax Loopholes Act of 2010.”  What a riot.   Now, I understand that experts are saying that this law will not impact a recovery (if indeed there actually is one going on).  After all partnerships are just one way of doing the deal (albeit the most common one) and there may be other tax efficient ways of doing so, but there is no denying that (a) returns will be lower, meaning (b) some people will not deploy as much money into dirt because the IRRs do not work, especially on the opportunistic side, and (c) some deals that "work" now will not work with higher taxes.  So, how this means more employment is a mystery to me. And the "loophole closing" is sort of a laugher too. As PERE points out: The introduction of a hybrid rate is an admission by lawmakers that current carry tax is in f...