As of a few moments ago.
Thursday, May 8, 2014
Monday, February 3, 2014
Posted by David at 5:06 PM
Thursday, January 23, 2014
...but when I have something to say I will write from time to time. The problems at chains such as Sears, Penney, Best Buy (and maybe Target down the road) will bring on some interesting times, and may bring down a whole boatload of regional malls in the next few years.
I expounded just a little on Elaine Misonzhnik's nicely-done story at my Facebook page. Could this be the first domino for all kinds of other national retailers?
I hope all is well with each of you!
Posted by David at 12:44 PM
Thursday, October 6, 2011
As the whole world knows, Steve Jobs died. And it wasn't a surprise. He'd been battling illness for years. He was the Thomas Edison of our era.
But let's go beyond that. Why? Because of this famous Stanford commencement speech:
Several quotes stick out the most, and they have been repeated ad infinitum all over the Internet and the news. I will repeat them anyway, taken from The Stanford Daily's text of the speech:
You've got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don't settle.
Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.
No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.
Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.Wow. If that doesn't hit you, nothing will. Facing your own mortality is absolutely no fun at all, but death is the one thing in life that is absolutely guaranteed.
Obviously, I'm no Steve Jobs. No one is. But it nonetheless makes you think about your own life. What do I love? My family? Of course. My wife? Far beyond my poor power to express it.
But my job -- law? I don't know. At one time, yes. But I honestly don't believe it is great work anymore much of the time. I think the profession is completely different than it was in 1993. For better or worse, providing legal services is often more of a commodity than a learned profession. Am I good at it? I like to think so. But am I as good or better at lawyering than anything else? I don't think so. I have been told that I am good at a lot of things. Maybe I am and maybe I'm not.
As a kid I wanted to be a lawyer and then go into politics so I could serve the people and make the country a better place. This was entirely my choice in life -- my parents never pushed me in any direction. Then I saw how dirty politics was.
In college, virtually all my professors -- including the pre-law adviser -- thought I would make a terrific member of the academy as one of their colleagues. But that didn't work out for many reasons, most of them my own and some of them because of the market and changes in the profession. (Let's be honest and politically incorrect: there aren't many jobs out there at all, let alone for those in my situation who didn't want to teach what is now the current rage in that profession.)
So it was back to law, the original choice. I enjoyed law school. The professor I worked for there - one of the smartest guys on the planet in my opinion - also thought I would make a great teacher. Deja vu, huh?
And I generally enjoyed my law practice the last -- wow -- almost eighteen years now. It is only recently that I have felt like there has to be more to this than what I have been doing. So you have those lingering thoughts: Have I settled? Maybe. Owning my own law firm gives me the flexibility to take off a lot of Wednesdays to be with my wife on her day off. A 9-5 job usually doesn't. Other jobs might pay as well but entail more working hours. Some call it golden handcuffs. I don't.
My wife is smarter than me. She shrugs this off by and large and just does her job -- which I think is much more fulfilling -- because it is what she knows and is what she is good at. She can't imagine doing anything else, while I can imagine doing ten other things as well, albeit for less money and while working more hours.
Is this my announcement that I am retiring from law? Absolutely not. But it does make me think: What else is out there? Is this truly my destiny, or is it something else? What does my heart in fact say? I don't know right now. The death of someone like Steve Jobs at all too young an age has spurred me to be more introspective about my own life and my own future, and maybe it will for you, too. Whether we have the courage of those convictions remains to be seen. So stay tuned, and stay in tune with your life every day, because you never know when it will be your last.
Posted by David at 9:36 AM
Tuesday, September 20, 2011
I attended Bisnow's Second Annual Real Estate Summit at the InterContinental Hotel this morning. It was a packed house, with a lot of familiar faces and some great speakers, including Steve Fifield, Mike Reschke, Gerry Nudo and the keynote speaker, Neil Bluhm. (Hearing Bluhm speak is a big deal to many of the real estate cognoscenti, because he does not appear as frequently on the scene as a Sam Zell or a Donald Trump, even though he is also a billionaire and every bit as savvy.)
What did I learn that I can pass on to you, along with my thoughts? (I am intentionally not attributing comments to any speaker here.)
- Several panelists don't see any turnaround here in commercial real estate until at least 2013.
- Lenders are dying to replaced paid off capital with new loans. I'm not seeing as much of that. But I am seeing life that didn't exist before either. I guess lenders and borrowers have different perspectives too.
- If a bank is asking for more money or capital, it is probably to increase the bank's rating of the loan so it can retain fewer reserves with respect to that loan.
- If your lender isn't calling you every week to do deals.... (Really?)
- Somewhat contradictorily, lenders are looking for construction loans to do, but then they don't really want any risk on the deal over $25 million, and they also do not want to be participants in someone else's loan unless goodies can be spread around.
- This is a once in a lifetime opportunity to do low interest, ten year deals with insurance companies, and you should do everything you can to get your LTV to a point where you can do those deals. Moreover, when you need to discuss something to the lender someone is actually there who can listen.
- CMBS spreads are not changing any time soon.
- Casino financing can be difficult because many lenders do not understand the difference between local/regional casinos and Las Vegas. Local operations are finite in terms of licensing and people go there like they would to a sporting event, while Vegas is an event, with virtually unlimited licensing and travel costs. That is why Vegas was hurt so bad in this recession.
Posted by David at 3:03 PM
Thursday, September 8, 2011
So, now I read the Department of Labor is investigating several major home builders. Why?
A copy of one letter, dated Aug. 1 and reviewed by The Wall Street Journal, said the department was opening a probe under the Fair Labor Standards Act, which governs matters such as overtime pay and limits on using teen workers.
The letter instructed the home builder to immediately turn over the names, addresses, Social Security numbers, pay rates and hours worked for all employees over the past two years. It asked the names of all contractors hired in the past year. The letter didn't allege any specific violations of law.I guess we'll see how this plays out. I try hard not to get into the political side of these things, so I will not do so here. Whether I agree or disagree with this is immaterial, because I can honestly see both sides of the issue. But I WILL say that this is not going to get any new homes built, though. And that's not good.
Posted by David at 10:39 AM
Tuesday, September 6, 2011
Let me relate to you a recent experience I just had. My wife and I just refinanced our home with a friendly local lender. We have a nice income, a very reasonable LTV and basically perfect credit. And being a doctor and a real estate lawyer, we know paperwork inside out. I, in particular, should.
And yet it took three months to close a simple refi. Why? Overregulation.
I understand that things were loosey-goosey a few years back. I said so. On some commercial deals I felt like we were in the Wild West. But now we have gone to the other extreme, where so many boxes had to be checked (at least half of which were not required even three years ago) that I got irate and almost killed the deal. (I will not even get into an absolutely idiotic title underwriting decision made by a certain large title company, but may do so in the future.)
And if I got angry and frustrated -- knowing more than 99% of the public about this process -- imagine the average person, with less than impeccable credit, LTVs or income. What a nightmare.
According to this story, at least six federal agencies have gotten further into the mortgage regulation act. The HUD-1, which was supposed to be made simpler, is now almost indecipherable, even for people in the industry.
So let's wake up. Regulation isn't bad per se. Too little of it is bad. But too much of it isn't good either because it stifles the economy. Let's find a happy, rational middle ground that protects consumers without grinding markets to a halt.
Posted by David at 12:22 PM
Monday, September 5, 2011
Keeping his laser-like focus on jobs, I'm glad that President Obama is giving a major speech on jobs Thursday before a joint session of Congress.
His latest proposal being leaked - infrastructure construction jobs through federal grants and payroll tax cut extensions - is even half right. But government can only do so much. Unless and until the private sector is moving again this economy is going nowhere.
So here is my suggestion: take half the money you were going to spend on government work and pledge it (and maybe not even spend it!) to the private sector. How?
It's simple. While there is some work going on, we need more real estate activity for small and mid-sized developers that are still in business. But many of them can't start new projects because no one will loan them the money.
So take half that money, and use it to guarantee, say, 90% of the amount of construction and mini-perm loans for new developments by small and mid sized buisnesses. Lenders could then lend with more confidence and the private sector can hire more workers. If the deals work out, we don't spend a dime. And if they don't, we still end up better off than we would with some ways we've been loaning money for; e.g., green jobs.
So how about it? Your job creation idea is sound. The administration's concept, if true, isn't a bad idea. But let's take it to the next level.
Posted by David at 10:09 PM
Wednesday, July 27, 2011
Happy to see that Related Cos. has bought the shell of a building called Waterview Tower and hopefully has the money to complete it, albeit as a shorter building and all residential. It is also hopefully a sign of some movement on the development side. I never would have thought it would or could stay partially done for so long, which is why I should stay out of the crystal ball business, I suppose. Here's a story on the acquisition.
Posted by David at 8:09 AM
Tuesday, July 26, 2011
Again, I have taken some time away from writing here, and today I must venture back into politics again, my previous controversial comments on Sarah Palin notwithstanding.
I am sick and tired of the government - Republicans and Democrats alike - playing political games for the benefit of no one but themselves. Every fight is a game of chicken and we are the cars. The most recent is the deficit and debt ceiling debate. You want to balance the budget or come reasonably close? Warren Buffett had a good idea. These people in DC are coming off like a pack of petulant children, and it has to come to a stop for the good of this country.
Inspired by Mr. Buffett, I therefore propose the following constitutional amendment for your consideration. I know it needs refining. Please let me know your thoughts, and, if you like it, please share it with your friends:
Section 1. Congress shall, on or before 11:59 PM Eastern Time on June 30 in any calendar year, adopt all legislation necessary pertaining to the budget for the government of the United States. No extension of time, continuing resolution or any procedure whatsoever shall substitute for the actual adoption of a budget, except as provided in this article. If Congress fails to adopt such budget, then all members of Congress and all persons in the employ or service of the legislative branch shall serve without pay or benefits until the budget is duly adopted, with no back pay provided for members of Congress.
Section 2. If Congress adopts a budget where all expenditures for the United States exceed all revenues by an amount that is greater than three percent of the gross domestic product of the United States in the preceding calendar year, then all members of Congress who vote in the affirmative to adopt such budget will, following the completion of his or her current term in office or his or her resignation from office, be rendered permanently ineligible from serving as a member of Congress or working or volunteering in any capacity whatsoever in the service or employ of the United States, either with or without pay.
Section 3. For the purposes hereof, "gross domestic product" means the market value of all final goods and services produced in the United States in any calendar year.
Section 4. The provisions of this article will not apply to any budget adopted (a) during a time of a war actually declared by Congress until the cessation of hostilities pertaining thereto, or (b) by an affirmative vote of not less than three-fourths of the members of each of the House of Representatives and the Senate.
Section 5. In the event the provisions of this article conflict with or are repugnant to any other provision of this Constitution, the provisions of this article will govern and control.
Section 6. The Congress shall have power to enforce and implement this article by appropriate legislation.
Posted by David at 9:29 PM
Tuesday, June 14, 2011
We've all been reading recently that Grubb & Ellis has (again) put itself up for sale. And the sharks apparently see blood in the water, as shares closed at $0.40 today. I think the company has to be looking to raise cash and pay debt, as evidenced by deals such as sales of its pieces. But then to top things off today, I read that Shawn Mobley, the former president of brokerage services, is hitting the road and that a number of other senior brokers are jumping to Cushman, which has been on a expansion tear.
So, that brings me to my question: which song best describes G & E's future? This one?
Or this song?
Posted by David at 5:09 PM
Tuesday, May 31, 2011
I guess it is time for me to dust off my chat hosting skills -- I can't believe it has been about 13 years since I have done it -- for a good cause! #CRECHAT on Twitter is a great group of commercial real estate professionals that meets weekly at 1:00 PM (Central time) on Fridays for an hour to discuss issues of the day in the business. This is the brainchild of my friend Jason Sandquist in Minneapolis, whom I have gotten to know through social media. I think he is a great and smart guy and really appreciate the effort he has put into #CRECHAT.
This week's topic is "Overcoming Obstacles in Commercial Real Estate Transactions." Simply put: what are some of the biggest problems out there that you have encountered, and how did you solve the problem for your client or for yourself to make the deal happen? Was it a person, a thing, a legal problem, a business issue, money or something else? And what steps did you take to make the deal happen? Or was it a deal that simply "needed killing?"
I'm looking forward to seeing all of you -- virtually, of course - on Friday! You can follow using the hashtag #CRECHAT on Twitter, or just go to this website that Jason has graciously set up.
PS: we usually "introduce" ourselves to the group at the beginning of the chat, but I plan to make a twist on the usual introduction with a surprise technological bent. I think you will enjoy it.
Posted by David at 9:37 AM
Monday, May 23, 2011
I have been reading a lot online about so-called social media expertise and all these folks who purport that they can make me a better and more successful lawyer because of their skill at marketing via blogging, Twitter, Facebook and the like.
This isn't to say there aren't a few people out there whom I think have legitimate knowledge and even expertise when it comes to social media. But I think that, more often than not, the real experts are not so much the ones who advertise themselves as authorities and try to sell you services (again, there are exceptions), but rather the folks out there in the real world who are just doing it.
I do not consider myself a social media expert, guru, ninja, black belt, maven, or anything like that. But I have been at it a long time; longer than most, now that I've thought about it thanks to a recent Twitter exchange.
My blog turned four years old last month without any fanfare. But my time in social media goes back beyond that. In the real-time format, my experience with social media goes back to about 1995, when I was on AOL as a young lawyer and hosting regular chats about the OJ Simpson murder trial. (And yes, I predicted the "not guilty" verdict. Everyone thought I was crazy.) And I started participating in bulletin boards and online discussion groups back in about 1988 on Prodigy, CompuServ and other boards. Yes, I feel old.
So, without further ado, here's what I think are the eleven most important words when it comes to social media for real estate professionals (and, for that matter, just about everyone) based on my years of social media experience:
- Be yourself. Even though it is the Internet and people (usually) can't see or hear you in real time, people can spot a phony at 100 characters. Don't pretend to be who you are not or put on some persona. This isn't Second Life, after all. Don't approach social media as solely a money-making enterprise, because people will figure it out. Look at it as a way to connect with the world initially without spending your life savings traveling the world.
- Be genuine. This is a corollary to being yourself. Again, a BS artist is usually spotted a mile away. Social media is not about selling things, at least not for me, because I tune out the blatant salesmen pronto. And don't sugar coat things. Tell it like it is, as Howard Cosell used to say, although I do like to say things in a nice way whenever possible because that's just genuinely who I am. And people appreciate honesty, even when it hurts a little; e.g., "Dave, you're really fat, you know."
- Be generous. Take an extra minute to help a friend or an acquaintance. You never know when the person needing the help will be you. Respond to requests for (non-confidential) information, to talk to people or meet them for coffee, lunch, or whatever.
- Share. Give credit to others. If you have an insight about something, or know or think something the rest of the world ought to know, and it is not confidential or anything, such as a piece of news, your reasoned opinion, or anything, say it. When I hear about things from different points of view it makes me a better person, which brings me to the educational words. (Also, retweet the good stuff!)
- Learn. Guess what? Social media is not all about you. It is about you and all the people you interact with and all the people they interact with, and so on ad infinitum. And you don't know it all. Take time to learn from others. You will not regret it, because their collective experiences will blow you away.
- Teach. Like sharing and being generous, you need to give back. We all know a lot about something. Tell us so we can learn from each other. But try not to do it in a preachy way. I remember being in chat rooms many years ago with a certain now-prominent celebrity who thought that s/he was the smartest person in the room, knew more than the rest of us about the law and was going to teach us dummies a lesson. A lesson was learned, all right.
- Have fun. I saved what I think is the best one for last. Don't treat social media like a job, even if happens to be your job. By being yourself, being genuine, being generous, sharing, learning and teaching, you should or at least ought to be having a good time at it. Revel in the collaboration at the keyboard and at all you have taught and learned and experienced. And then step away from the computer once in a while! After all, life is too short not to have fun.
Posted by David at 3:59 PM
Thursday, May 19, 2011
Thanks to the efforts of Jason Sandquist, some of us in the commercial real estate industry who also participate on Twitter are planning a series of weekly chats on the industry at 2 PM Eastern time, starting tomorrow.
You can also follow a feed of the chat here. I was thinking about playing hooky tomorrow with the nice weather and all, but I do not want to miss the first effort! (Perhaps the iPad or a laptop in the clubhouse is a good compromise.)
I hope you join us.
Posted by David at 12:56 PM
Wednesday, May 18, 2011
That is my current analogy of how the market is performing right now. Why? After looking at this and other similar deals.
In test cricket you play it safe for the long haul. The game is five days long with, typically, two full turns of batting and fielding. (Yes, I am over-simplifying cricket. It isn't the easiest game to understand for us Americans, after all.) So batters tend to try to hit balls that will get them one and two runs, with anything more being gravy. That is what buying a building at a 6-cap is: safe and long-haul.
There are shorter forms of cricket that have become increasingly popular, such as one day games or even three hour formats, known as 20/20 cricket. Here the emphasis is on taking risk and hitting for fours (you score four by hitting the ball to the boundary of the field) and sixes (for hitting beyond the boundary). These deals are still in the works, because they are riskier and harder to underwrite and many institutional investors are, well, okay with singles right now.
The problem is: until the riskier development ideals start getting done again, you have a construction market that is, in a word, moribund. When those workers are back on the job the economy will, in my opinion, improve. Without it? More of the same. There is a lot of space that is vacant, but that is sometimes a function of location and lack of demand at those locations. For instance, are you going to build in the exurbs or in the heart of the city? Fortunately, people are hearing whispers of deals quietly being inked and negotiated, and perhaps next week's ICSC conference in Las Vegas and this week's ULI meeting in Phoenix will give us a little more intelligence on those types of deals.
Posted by David at 9:04 AM
Monday, May 16, 2011
This is a follow up to my post on why you should call me (or your real estate lawyer) first. Let's be honest, though: it isn't always going to happen. Why? Time, money, hubris, you name it. I get that. I don't like it but I get it.
What really irks me, though, is a corollary to at least two of the five points I made last week; namely, this classic: "Oh, I just signed the document without reading it." And it happens more than I care to admit.
I can hear someone say, well, what about the boilerplate residential loan documents that are uniform and the same for every single deal? Okay, I understand. But did you confirm the deal terms were correct? What about the HUD-1? Did the Truth-in-Lending Statement change? (That is a no-no these days.) Did you sign a document saying that you are going to own and occupy the house when in fact you are not?
What am I getting at? Read The Friggin' Document. Maybe it will all make sense and you can at least be informed about what you are doing. Maybe you will catch a mistake. And maybe, just maybe, you will realize that there are some terms in these documents that you don't understand completely. At least then you might come to your senses and call someone who can help you. If not, then you'll be calling someone later, most likely after it is too late (or very expensive) to fix the problem.
Posted by David at 9:56 AM
Wednesday, May 11, 2011
I read with great interest Maura O'Connor's recent blog post on re-engineering real estate law. It was a good post for what it is, except that I had to say to myself: "Isn't it about time the large law firms caught up with the rest of us?"
(Full disclosure: I was, some ten+ years ago, an associate at the Chicago office of Seyfarth Shaw, the firm where Ms. O'Connor is now a partner. [She came on board after I left, as Seyfarth did not at the time have a real estate practice in its California offices.] I had a wonderful experience there and many of my former colleagues are friends to this day. I harbor absolutely no animosity toward BigLaw and work routinely with them on deals. And I respect the work they do. I just no longer wish to bill 2000+ hours a year.)
As Maura points out correctly, BigLaw is slow to change its business model out of institutionalism, profit incentive, hourly billing rate pressure, per partner profits and other factors. For someone like me, who does not have the pressure of having to ask partners or administrators to modify my billing rates or quote a flat fee deal, it is an entirely different animal.
And as Jay Shepherd rightly points out, you either know how to price a deal or you don't. I think I do, although in some cases if I say so myself I am a pretty good deal, inasmuch as I see people charging double my billing rate for the same work.
What I find annoying is when that work is done poorly at those rates, regardless of the firm's size. I have been reviewing documents and other work product the last few weeks that would have gotten me scolded if not fired a few years ago. In addition to the usual egregious typos (I know, but lawyers are trained to loathe them), there were internal inconsistencies, wrong choices of law, provisions that were not checked against the business deal, terms left in from previous deals that did not belong here (yes, Virginia, we all re-use the same forms over and over again), documents that had to be corrected two or three times -- you name it.
I think part of the problem is that the senior associates and partners do not have the time anymore to mentor and work with the younger folks to improve their drafting and lawyering skills. It is an art. I am not perfect by any means at all, but I had some great mentors who took the time -- even non-billable time -- to make me a better attorney, and for that I am grateful. These days? There is so much pressure to make hours these days that it is hard to make the time to both mentor the young and have a life.
All the buzz words aside, here is what it really comes down to in my humble opinion, and it isn't rocket science:
1. Clients want results. And they will pay for results.
2. Clients want you there. So yes, you answer the phone or an email when least expected.
3. Paying up to $750/hour for routine legal services is, in my opinion, insane. Period. When you are betting the company or doing the deals in the spotlight (been there, done that, by the way), it makes a LOT of sense. But for some items, as Maura correctly points out, there needs to be a different approach. Maybe getting BigLaw to come down to my pricing level is one way. Hiring people like me is another, as you do not sacrifice quality, or get my skill for the price of a junior associate.
4. Know how to price a deal when asked. A good real estate lawyer can usually give a good and fair number.
5. Work hard when called for. Be thorough. Turn the product around. Keep the client happy.
So, dear BigLaw -- welcome to our world. We small firm folks have been "using modern business process driven methods, smart forms, predictable pricing and agile lawyering" for years now. Nice to see you catching up to us!
Posted by David at 1:57 PM
Tuesday, May 10, 2011
Lawyers love checklists. They love checking little boxes and ticking off each portion of a deal as it is finished, culminating (hopefully) in the closing of a transaction.
Much as I like to chuckle about this, checklists serve very important purposes. When I started as a real estate lawyer, I thought that my prodigious memory could handle all the details and that I didn't need to spend the time working on them. My mentors fortunately convinced me otherwise before I fell into bad habits, and they were right. (See #2 below.) I therefore have a checklist for every commercial real estate purchase or sale or loan in which I am involved, be it one page long or more than a dozen with over 100 items. Before you ask: yes, I have checklists for other real estate transactions, too. I use a checklist of different sorts for leases, one that no one else I know uses. But it works for me and keeps the deal going. I also have my own little quirks when it comes to how I prepare and edit and work with my checklists. I will not bore you with those details except to say again: it works for me, and I encourage you do have a system that works for you.
So why should you have a closing checklist?
1. A good, thorough checklist is the road map of a commercial real estate transaction. By spending the time up front and at the beginning of the deal you can see what needs to be done and budget your time accordingly. It also helps you make sure the long lead-time items are taken care of first.
2. Without a checklist, you will inevitably forget something. I don't care how good you are or how many deals you have done. It will happen. Period. Heck, even with a checklist sometimes something will fall between the cracks because someone forgot, because you didn't know about certain requirements or because someone never told you about something. That's why you make the big bucks, so deal with it and move on. (I speak from experience here, by the way.)
3. A good checklist delegates responsibility. It says what the buyer, the seller, the lender, the brokers (many lawyers often forget about them, and they shouldn't!), the title company, the attorneys and any third parties need to do to get the deal done. Depending on the circumstances, sometimes I prepare two closing checklists: one for internal use and one to circulate among all the parties.
(Here comes the one you may not have thought about.)
4. A good closing checklist not only adds value to the deal but shows just how you are doing so! By creating the road map, you are also showing just what you are doing, how the matters assigned to you are progressing and how close (or far) you are from getting the deal done. A client can see this document and say, "Hey, this all makes sense. Look at all these things we might have been scrambling for or forgotten about if Dave hadn't provided the checklist! Updating the checklist periodically is also important, in my opinion, as it shows the progress of the deal. It also serves as a reminder to people to get their parts of the deal done so we can close, and exposes those who are not doing that.
These are by no means the only reasons to have a good closing checklist. But they are four good ones. If you have others, speak up.
Posted by David at 11:01 AM
Monday, May 9, 2011
Okay, time to fess up: I am in the business of making money as a real estate attorney. Gee, imagine that! But that does not mean I always get the call from a client or a prospective client, or get it in time. Here are some real life (modified a little to protect confidentiality and all that) examples of clients who should have called me first before doing something:
1. Oh, it was only a letter of intent. I figured you could just fix it up in the contract. Maybe yes, maybe no - and for a variety of reasons. Does the letter of intent say it is non-binding? And even if it does, are there provisions a court may find binding anyway, such as the duty to negotiate and work in good faith? (Yes, it all depends.) And even if you have all of that going for you, there may be provisions in the LOI that, while non-binding, are awfully hard to negotiate against once it is in the "roadmap" of the deal. There are few positions I like to argue against less than, "Why are you retrading us on Provision X? It was in the LOI for a reason." So I end up spending more of your money fighting what could be a losing battle in a negotiation than if I had been involved from the get-go.
2. They said this document was just a standard form. And the check's in the mail, this will only hurt a little, and honey, I swear it is only a cold sore. Uh huh. So that is why you signed a ten year lease with a full personal guarantee for your business even though your financing is still in the approval state? You didn't negotiate an out from that? Oh, your lawyer would at least have pointed it out to you so you'd know the risks. Oh, you are calling me now! I see...well....
3. Oh, I don't need title insurance. The lender has a policy so that will be enough. Nope. The lender's title insurance policy only kicks in if your loan is impaired and you blow out on your mortgage. It insures the lien of the mortgage and gives the owner, in a word, nothing. The cost of a simultaneous issue title policy in connection with a refinancing is cheap. I Often advise clients to get one, especially if a property has appreciated in value significantly. That said, you don't necessarily need a new one if you have a policy in place but the title agency went out of business. The insurance underwriter that issued the policy is still liable for any claims. Each case is a little different.
4. I signed the lease (or the purchase agreement) without calling you because the owner is an old friend. That's great. But what if you sign a ten year lease and the owner sells the property (or worse yet, is foreclosed) during the term. You now have a non-friend as your landlord or a lender that could perhaps terminate your lease. Do you want to be in that position with no bargaining power?
5. The lease amendment just changed one thing and had a page or two of boilerplate provisions. Uh huh. I can think of one instance where "boilerplate" in a lease amendment cost a tenant millions of dollars in extra rent many years later because the tenant's lawyer (who actually drafted the amendment in this case) did not think through an important financial issue or perhaps never read the original lease. (PS: I was not the tenant's lawyer.)
Hopefully this convinces you to spend a modest amount of money up front for some good professional advice, be it from me or another real estate attorney. The alternative? Letting it go, and then risking having your matter falling into one of the above categories or another one. Trust me, the bill you get for being proactive will be cheaper in the long run than the bill you will get for being reactive.
Posted by David at 10:15 AM
Wednesday, May 4, 2011
In the last few weeks I have read several items suggesting that the normal node of real estate lawyers, or transactional lawyers in general, is as a deal killer. The most recent came today while reading the website of John T. Reed, a real estate writer whom I respect a great deal. He is truly one of my favorite writers on real estate, current events and the military. If you haven't been to his website. I encourage you to check it out.
I have never really thought of myself as a deal killer. I see my job as advising clients on potential risks that might be out there so they can make an informed business decision on whether or not to go forward with a transaction. Here's an example based in part on real life. Client X is thinking about buying a property. A portion of the property is encumbered by a covenant with a right of reverter to the city if certain work is not completed and a certificate of completion filed with the city. The work was done and a there was a certificate in the title company file, but it was never recorded. My advice to the client in this case?
First, is the title company willing to insure over the right of reverter given that is has an unrecorded certificate of completion? Yes. Move to step 2.
Next, is the city, as part of the rezoning process, willing to drop its right of reverter? Client thinks so based on discussions with the city and its attorney. Move to last step.
In the event the city does exercise its right of reverter (which in the client's analysis was a minimal risk), would the title insurance proceeds (assuming no fight over coverage) be sufficient to make them whole? Yes, the client thought so.
My job wasn't to kill the deal, which in fact closed. It was to give them a road map of possibilities and scenarios to allow the client to make an informed business judgment on whether to proceed. It wasn't an easy call, but it was an informed one. And sometimes the deal dies. Heck, I've heard of the murder defense called "he needed killing," and you can compare that to some deals that have four legs and bark. So don;t always assume your lawyer -- or the other guy's lawyer -- is someone out there trying to stop you from making money. We are out here to advise you of the risks and rewards of playing in the sandbox.
Posted by David at 12:02 PM
Tuesday, May 3, 2011
Posted by David at 8:17 AM
Monday, May 2, 2011
If you think residential real estate is all about location, location and location try doing some retail work! There tenants or buyers don't just want the right neighborhood, the want the right, side of the street, a full mall and the right mix of tenants. Oh, and tax incentives don't hurt either, especially for the box tenants.
This story gets into traditional and strip mall vacancy rates (which will vary wildly) and does a good enough job, but I wish it had taken the analysis a step further. So I will.
National tenants and retail tenants with a lot of negotiating power will often negotiate co-tenancy clauses in their leases, giving them the right to reduce rent or even terminate the lease if certain events occur. Usually they involve one of two events, and sometimes both. The first is if the leased area of a center goes below a certain threshold, then the tenant has the right to walk. The other typical co-tenancy clause involves a major store; e.g., if two of the four anchors close the smaller (also known often as "in line") national tenant also has the right to shut down.
If you are not a CRE pro and ever wondered why your local mall, within a short period of time, went from being full to half vacant or even dead, this is sometimes the answer. Certain leasing events with other tenants occurred that triggered the co-tenancy clause in many leases and folks starting blowing out. This is by no means the only reason. Sometimes a new, better center opens. Other times, leases just expire (for instance, I have seen malls go half empty around the 10th anniversary of an opening). But add another possible answer for the reason to your arsenal, one that the average guy will not think of or know about. (But then the average reader of this blog probably knows that, right?) And landlords will often, when they can, negotiate incentives to get tenants to stay, especially if they know a co-tenancy may be at risk. (If you don't think that happened with Border's, guess again.)
All that said, remember the magic word of location. If your building is where the shopper are or want to be, you are in way better shape than...well, the others.
Posted by David at 11:59 AM
Thursday, April 28, 2011
So, the big news exciting everyone in the commercial real estate world yesterday was the announcement of CoStar acquiring its rival and sometime litigation adversary LoopNet in a combined stock and cash deal expected to close by the end of 2011. As always, Retail Traffic has excellent coverage of the deal. The two companies are, as far as I know, the biggest national players in the commercial real estate information market. Since I am a lawyer I do not use either service much, other than for news; but on the property information side I do have a preference for one company over the other.
When I saw this announcement, the one question I had was whether the combined company, given the market share it would have, would run afoul of anti-trust laws. I am not the only one who thought that, as I saw a tweet or two to that effect and received a message from a friend (who can identify him/herself is s/he wants in the comment section) asking the same thing.
My initial reaction was that this might be a problem. But then three things happened:
1. Jason Sandquist correctly (and indirectly) reminded me that in many markets (including the small market where I live), the good old MLS is still king. The commercial service providers are big on the national level but they are not alone for information.
2. I saw in the press release the law firms working on the merger: Simpson Thacher for CoStar and Davis Polk for LoopNet. No slouches they -- two of the preeminent M&A law firms out there, with armies of folks able to argue that this deal is okay. (The business advisers were JP Morgan and Evercore Partners, respectively.)
3. Finally, this little wire gem on termination fees: if LoopNet tanks the deal it pays a 3% fee, or $25.8 million. If the deal tanks for anti-trust reasons, then CoStar pays LoopNet a 6% fee, of $51.6 million. I don't know what is typical in the business, not being an M&A guy, but I believe the proposed antitrust termination fee for the NASDAQ offer to buy the NYSE is just over 3%. So a 6% fee to me means someone must be confident it passes muster.
We will all keep an eye on this one, I'm sure.
Posted by David at 2:13 PM
Tuesday, April 26, 2011
How do you get these three things into one blog post? Read on.
A somewhat encouraging article this morning on increased liquidity and demand for commercial real estate lending makes me happy. As loans and properties reposition themselves one way or another, lenders have more ability to move money around as the balance improves. So more people -- alas, usually not the original owner in many cases -- make money. The banks can lend again, the buyers of notes can reposition themselves as owners or restructured lenders...you get the picture. And we lawyers negotiate all that stuff, for better or worse.
So why NATO? Because it is going away. I am not, however, talking about the military. I am talking about the NATO my father always referred to when I was a kid. For him, NATO stood for "No Action, Talk Only." And face it: that's all many of us in the business have been able to do for the last few years, too. But now we seem to be moving into a mode where we can do more than do, and action is a good thing for us all, as it is the only way to make money.
Speaking of money, the NATO trend has slipped into the legal profession, too. But the worst offenders of NATO, in my not so humble opinion are the so-called "social media gurus" who hound us on blogs, Twitter, etc. telling us they know the secrets to getting rich using social media. There's only one whom I think is worth his salt. If you are reading this wondering, "Is he talking about me?" I'm not. He knows who he is and probably isn't reading this post anyway.
So if you will excuse me, I have to go make some money now. Have a great day!
Posted by David at 8:22 AM
Monday, April 25, 2011
THIS is what I want to read. And my retail developer clients want to read it even more. Thank you Crains and thank you CBRE for the optimistic report.
The even better news? Net asking rents are up about 3% from the previous quarter. So even though some retailers want to curb store size (Kohl's being the latest big box to join the trend, according to this WSJ piece today), they will want the store fronts. Let's see if it holds.
Posted by David at 1:09 PM
Jones Lang LaSalle has a capital markets research report out that says commercial real estate volumes surged to just under $90 billion in the first quarter of 2011. I guess that is good news.
But the surges were mostly in Asia, with Japan being the biggest player there. (This was before the earthquake, tsunami and nuclear accident, by the way.) Europe? Activity slowed compared to Q4 of 2010. Year end deals? Ditto the Americas: a "modest drop-off." JLL takes pains to say that the worldwide volume is still up from Q1 2010, but then there was nowhere to go but up, right?
One thing I didn't notice was whether the volume, reported in dollars, made any difference because of the dollar's decline against most all other currencies. That, of course, is an entirely different subject that I will let the currency experts and economists figure out.
The report also notes:
"There are sound reasons for investors to be looking at commercial property: its perceived inflation hedge; supply shortages in many gateway markets; appealing risk-adjusted returns when compared to more volatile assets; still-attractive pricing outside some of the prime markets which corrected earliest; and even a pick-up in both debt issuance and securitization. We expect a further $290-310bn in direct commercial real estate transaction volumes in the remainder of this year."Translation: maybe a 5-10% pickup in deal flow over the rest of 2011. Right? Not bad, not great. At this point you take what you can get.
What I see? Big deals get done. Little deals? They take a back seat. Mid-market deals, the ones in my sweet spot, are taking a long time to close, as due diligence is both due and diligent and everybody (rightly) dots the Is and crosses the Ts in making a deal.
If you see something different, please do not be shy. We call have different perceptions. We discussed that at a planning commission committee meeting last week and it was a great reminder that my reality is another person's fantasy, and vice versa.
Posted by David at 11:16 AM
Wednesday, April 20, 2011
Just one quick note: today's Wall Street Journal had a good piece on the big boys selling portions of their mall portfolios. Take a look here. And have a great Wednesday!
Posted by David at 10:39 AM
In my legal career I have lived by certain standards. One of them is to not just avoid improprieties, as all lawyers should, but to also avoid situations that even create an appearance of impropriety. (I know at least one person who disagrees that I do so, but s/he is, in a word, wrong.)
Case in point: I serve on my local library board and am a director of my homeowners association. I also have the privilege of having been appointed to the county's regional planning commission, which studies and makes recommendations about macro land use issues in the area. Because of that appointment I have regular contact with elected officials and with county staff that might have an impact on matters involving my subdivision, which is in unincorporated territory. Although I didn't have to, out of an abundance of caution I have recused myself from any dealings with the county that involve my subdivision lest I be accused of trying to influence people improperly. I have refused to take on legal matters that I certainly could have for similar reasons. Has it cost me money? Absolutely. But I sleep better at night.
I'm sure my former state representative, Careen Gordon, is an honorable person. I admittedly did not vote for her in the last election because I never saw her touch on the issues; all I read and heard were ads that basically said to me, "Don't vote for my opponent because she is married to a doctor and lives in a big house." Since I am married to a doctor and live in an above-average sized house, I didn't think that was a good reason to disqualify a candidate from office.
After losing in the 2010 election, Gordon's was the crucial vote that raised our state income tax from 3% to 5% in a lame duck session, a vote with which I disagreed for philosophical and political reasons. Two days later, the governor nominated Gordon to serve on the Prisoner Review Board, a position from which Gordon wisely withdrew her name from consideration and to which she may well have not been confirmed.
Well, now we get word that Gordon has been given a state job that does not require any confirmation: as an associate general counsel in the Illnois Department of Professional Regulation, apparently to work on matters related to real estate. Hopefully she can start by fixing some of the changes for which she voted that are causing nightmares with small homeowners associations, or so I am reading from my listserv colleagues.
In both instances there were numerous complaints that the appointment/job amounts to a quid pro quo: trading the tax hike vote for a government gig. I cannot opine on that. What I can say is that I would not have accepted the position, at least not so soon after being voted out of office and changing my mind on a critical issues such as this. But that is me. And I wonder aloud whether we need legislation prohibiting those voted out of office from accepting any paid government position for, say, two years after leaving office. It sure would look better while not permanently depriving us of talented people in civil service.
Posted by David at 10:29 AM
Monday, March 14, 2011
I don't get it. I guess I am not just not as smart as the folks in Bentonville. Walmart was originally a dumpy box of a store with the interior feel of a warehouse. It wasn't a great place to shop, although it sure was the place to buy American and cheaply, at that. Now the stores look nicer and the products are all from China but the media says Target, which I still enjoy way, way more than a Walmart, may be cheaper. (My wife prefers Walmart locally because of size, perceived value and the fact that our Target isn't a super store.)
But that isn't the main thrust of this piece. Rather, it is about the small store format that the company is pursing. I really don't get that. So Walmart is going to open a 10,000 sf store in Chatham, a south side Chicago area known as a solid middle class minority neighborhood. (Yes, I have driven through it and driven by this site many times. It is not a particularly pedestrian friendly location, though not an awful one either.) Okay, that is bigger than a 7/11 or convenience store but smaller than a Walgreen's and certainly small than the Jewel-Osco almost next door, where you can get a whole lot more selection. The only thing I guess they figure is price will win.
But then there is a different issue: cannibalization. The company is building a SuperCenter right in the neighborhood. One store will not siphon off the other? The one saving grace of the small format store is fewer employees, perhaps meaning less overhead. I can see a store like this in central business districts, but in a urban area next to a Lowe's and a Home Depot, not to mention a Marshall's and a Best Buy? Not getting this one at all.
Walmart was at its best when it followed the tenets of Mr. Sam. This is away from that, in my opinion. As this post from a couple of weeks ago says, "As retired executives at A & P and Sears could tell Wal-Mart executives, the middle is a very bad place for retailers to be." In my eyes, at least, Walmart is better off going back to 1978 than in this direction.
Full disclosure: we do own a very -- indeed, laughably -- small amount of Walmart stock.
PS: Many thanks to my friend Duke Long for encouraging me to write this.
Posted by David at 12:33 PM
I know I haven't posted in three months. I even write a farewell post, but decided not to put it up in case I changed my mind so I would then not look like a schmuck or the blogging equivalent of a pinch-drunk boxer coming back for more punishment. I have been concentrating on work and other things in my personal life. As to the former, you can guess what that is about. As to the latter, well, I am not prepared to discuss that except to say it is all good and hopefully will be better as time goes on. If things go the way I want I will eventually tell you about it.
A couple of weeks ago one of my old bosses called with about the highest compliment one professional can pay another: a referral. It was for a small deal that his firm could not handle economically but that I could. After quoting a rate that I thought was fair -- I later realized that it was identical to the rate on my proprietary formula that I have for pricing flat fees -- we adjusted it and sent it on to the prospect. About an hour later I found out I wasn't getting the work, because someone else agreed to do it for less than a third of what I thought was a fair and reasonable price to do a good job.
I'm not, by the way, trying to slam the firm that eventually got the assignment, although some might say that you get what you pay for. Efficiencies and all exist, and perhaps this firm has a way to do good work at a cheap rate, and if so I commend them. Nor do I have sour grapes about the work. I am right now about as busy as I want to be.
As for me, I am not willing to go in that direction. When you hire me you hire exactly that: me. And I think I am pretty good at my job, if I do say so myself. I'm not farming the work off to paraprofessionals, good that they may be in many instances. Call me a control freak, or just someone that does not want to deal with employees. day out. And I don't take shortcuts. So if to survive in this "profession" -- which unfortunately is becoming less one by the day sometimes -- I have to take those shortcuts, then I will find another way to make a living. Somehow I do not see that happening any time soon, although you never know.
I will have another post up shortly.
Posted by David at 12:10 PM
Wednesday, December 22, 2010
The New York Times had a good piece on the five year anniversary of Kmart buying Sears and becoming Sears Holdings. At the time, I said that Edward Lampert's acquisition of the retailing icon was as much a real estate acquisition as it was a retail deal.
Unfortunately on the retail side, the attitude of many people is, as the last sentence of the piece states succinctly, “Honestly, I’d rather go to Target.” Sears and Kmart are still doing poorly, and many think the future -- if there is one -- lies in the Sears strategy of trying to become an Amazon.com style retailer. (Go it its website with all the amalgamation of other sellers there and you will see what I mean.) Apparently Sears Canada is the company's saving grace.
The fallback point? Dump the dirt at some point. But given the current market even that isn't so attractive according to some analysts, and that makes sense. For every hot Sears or K-Mart location, according to analyst cited in the Times, there are three other locations that have four legs and bark. And that does not include the specialty stores such as Sears Hardware, outlets and the like. Perhaps the big buck stores can make enough money, but don't be surprised if there is ever a big liquidation of locations, you see a lot of empty or re-purposed stores. Given the co-tenancy clauses you see in many leases with national retailers, this can have a domino effect on shopping centers.
But that all puts the cart way before the horse. (Nor am I convinced this analysis is correct.) Many people had Sears Holdings dead a while ago, and they've hung on this far. One or two hit brands or lines (such as apparel, which I thought they figured out by buying Land's End some years ago, but I was wrong) can revive sales -- which are needed given a decline in its traditional dominance in appliances -- in a hurry, and that Chicago-based lady can be humming a happy tune again.
Posted by David at 9:00 AM
Thursday, December 16, 2010
I could not resist the old Disneyland ticket system analogy in thinking about the Chicago market right now. (For you younger folks, search the term and you will understand.)
The great news in Chicago? Two trophy properties are trading. The Hyatt Center is under contract to
The Irvine Company (Billionaire Donald Bren is the long time head of TIC) at what is understood to be just over a 6-cap, or $625 million/$419 per square foot. I suppose that is not a B-ticket price for that great property. Then you have 353 North Clark trading from a Mesirow/Friedman Properties venture to Tishman with a purchase price, they say, of $385 million/$321 per square foot. The difference? Well, while I like both buildings, Hyatt is perhaps better located, but even more important is that little detail of a $374 million construction loan at Clark Street.
So, does this mean we are back? Not for all of us. Institutional buying is back to some extent for the right (meaning, Class A) property at the right price, whatever that may be to the buyer. What it could mean, though, is a little melting that will eventually reach to the non-trophy deals.
Once again, it is a matter of unclogging a logjam at the lender level and at the investor level, where money sits without the ability to finance deals at what many players consider acceptable returns for the risk. (Remember, pension funds and institutional folks often have completely different objectives than, say, opportunistic funds or developers.)
So yes, I'm glad to see properties trading. But I want to see different types of deals and financing and more volume before I can say the corner is really turning.
Posted by David at 11:18 AM
Monday, December 13, 2010
In my first year Contracts class in law school, we learned about liquidated damages; i.e. a clause stating that a certain amount of money is a reasonable estimate of a party's damages in the event of a default and that, in lieu of litigating the question of damages, the stipulated amount will serve as actual damages and not as a penalty.
Liquidated damages play an important role in many real estate contracts. I like them for both sides. It can limit the buyer's downside and quantify the seller's compensation if a deal goes bust. Most every big deal I run across has a lengthy liquidated damages clause, and more often than not the amount of the earnest money deposit is the stipulated sum. But this excellent article (about, of all things, the opulent former Adelphia Communications headquarters in Pennsylvania) reminds us that liquidated damages (a) should be tightly drafted; and (b) are supposed to be a reasonable estimate of the actual damages, not a number thrown out there. (I have not read the contract in question here.) It also reminds us that a seller can sometimes have a windfall in the event of a buyer default; in this case when the buyer defaulted the seller found a buyer who closed at a slightly higher price. The court nevertheless agreed that the provision was not a penalty, particularly because of evidence of what the actual damages could be. The fact that there were no little or no actual damages didn't matter.
Of course, the other big lesson is to have an honest lawyer. The buyer wired its lawyer $2 million to send to the escrow agent, who then let another client borrow the money. That other client tried to flee the country but was caught. The lawyer, of course, defrauded his client and was disbarred. Ouch.
Posted by David at 10:21 AM