Tuesday, July 31, 2007

Dear budding lawyers: need more proof on salaries?

NALP, the National Association for Law Placement, has a study out stating that there are plenty of jobs for lawyers, but the pay is not the huge sums the media talks about.

According to a NALP press release, while jobs may be aplenty, "It is also clear, however, that a strong employment market does not mean that every new graduate started work at a large firm at one of the much publicized $135,000 or $145,000 salaries. In fact, just 14% of salaries were either $135,000 or $145,000. Far more, 42%, were $55,000 or less. Far more graduates started work in small firms of 50 or fewer lawyers or in non-firm settings (71% of those employed) than at firms of more than 100 lawyers (just 20% of those employed)." And those numbers are up from last year. Check out the link for more interesting details.

I hope every aspiring lawyer thinking s/he is going part of the 13% (and becomes a lawyer for no other reason) reads and thinks long and hard about this before going six figures into debt.

Wolf Point: Great views plus awesome location minus lousy access and high density equals what?

Wolf Point is a parcel of land right at the confluence of the North and South Branches of the Chicago River. As the crow flies it is about 300 yards from my Chicago office. The Kennedy family owns the dirt, having retained it after selling the Merchandise Mart and the Apparel Center to Vornado.

The Kennedys, in connection with Hines, L.P. (the office developer) and Habitat Co. (a well-known local residential developer) have revealed plans to build three buildings on the four acre site: an 89-story tower with condos, apartments and hotel rooms, a 40-story building with a million sf of office space and a 56-story condo tower. Cesar Pelli is the architect.

Here's some random thoughts on the project.

Notwithstanding the glut of hotels and condos, this project could do very well just because of the spectacular location. You can get an idea of the types of views by watching the Nicolas Cage film The Weather Man. And who knows what the market will be like in five+ years anyway?

This is not the first ambitious project planned for this site.

If done right, this could really make a nice balance against 333 W. Wacker, which is just across the river.

The access to the property is, alas, just awful. Just one narrow one-way street (Orleans).

What will Alderman Brendan Reilly say? Has he already signed off? There is a ton of density here, and while you are near downtown there could be concerns that the traffic count and number of planned buildings and units might be too much for Orleans Street to handle.

All in all, I see this as a potential blockbuster project, but with some troublesome features that could make its development difficult. But assuming they can be overcome I'd sure be interested in owning something there.

Monday, July 30, 2007

Legal work: there's hope for the little guy yet.

Most people were very happy for me when I decided to end the daily grind of working at a first-rate boutique law firm specializing in real estate. It really was one of the toughest decisions I've ever made because I truly liked the place. Some, however, said I was doomed to working on routine, even dull legal work because only the big firms got the "sexy" deals (note the use of quotes because I've yet to see an arousing real estate deal).

Admittedly, I do some more mundane work these days than I used to. And that is okay. I also have some cutting edge work, too, and time to write and do other things I enjoy. Besides, clients are apparently becoming more and more interested in attorneys like me to do their legal work, both large and small. And this is all in spite -- or perhaps because -- of the mega mergers in law firms and predictions that people like me would go the way of the Model T.

Why? Check out this story about small firms and solos working for companies like The Trump Organization, Equinox Fitness and BP. According to a study, we provide better value (read: twice the value) for the dollar, better client service and better focus on the most important thing of all: the client. You also obtain for your dollar the experience of a more seasoned attorney who has been around the block. The spiraling cost of legal services is obviously a big factor. And I think we really do try to understand the business of our clients and make sure we provide the best level of service possible at a reasonable cost.

Is this a commercial for my firm or my services? I guess it is in a way. But this is not a slam on my many BigLaw friends. They can still do the megadeals that I can't without proper notice to tool up, and they also do work I'd rather not even touch. But guess what: we're here too, we're not going away, and we're not just doing house closings.

How many Chicago hotel rooms can you build?

One of my earliest posts predicted potential bargain luxury hotel rates in Chicago in a few years because so many new rooms were coming on line.

A story in Crain's quotes people who are more sanguine than I about these prospects. McCormick Place West is now coming online, which will help Chicago compete with other markets for the largest conventions (union rates and so-so onsite food choices notwithstanding). But a 25% jump? Hmmmm.

The story cites one developer who "says he has seen financials for proposed developments projecting average daily rates of $400 to $500, 'which are insane in Chicago.'" I cannot disagree with that if it is true. Maybe at peak times, yes, but every day? How can you realistically underwrite that? If this trend is accurate, predictions of foreclosures and bankruptcies down the road are probably not far off the mark at all. I'll be interested in following this as both a real estate guy and as as a hotel consumer.

Today's legal term - encroachment

I thought it might be interesting to talk about legal terminology from time to time. Watching an old episode of The Jetsons was the clincher to start with encroachments.

An encroachment is when a structure intrudes on to the land of another. Usually it is a fence, a garage or some kind of building. Sometimes an encroachment can be on to someone's easement, which is one form of a right to use another's property. A common example of this is a toolshed built over a utility easement.

I cannot tell you how to deal with any particular encroachment because the resolution of such a matter is really done on a case-by-case basis. Sometimes it is a big problem, other times it is not. Sometimes title insurance is available, insuring over forced removal or diminution of value or against adverse possession (an interesting topic for another time), and sometimes (e.g., especially with fences) it is not. As we all say, consult your attorney.

Some of you are probably asking: why the heck did you think about this while watching The Jetsons? Because my favorite episode teaches you about encroachments! George is reading blueprints of the building where he works, Spaceley Sprockets, and of the new building its hated competitor, Cogswell Cogs, erected next door. George tells Spaceley that Cogswell built his building six inches on to Spaceley's property, leading to a meeting where Spaceley tells a kneeling Mr. Cogswell to "MOOOOOVE IT". Alas, George read the blueprint wrong and the Spacely building was actually encroaching on Cogswell's land, thus turning the tables and forcing, as I recall, an expensive settlement. (There was, of course, no discussion of adverse possession.)

The episode is also a reminder of why a forced removal endorsement over an encroachment can be a good idea. You can view the show here for $1.99.

More CMBS woes -- but are they?

This came in over the weekend -- CMBS defaults in the second quarter are up 13% from the first.

The other bad news is that some of the defaults are on very recent loans, which is leading some to speculate that the subprime problems in the residential market may leak into the commercial market. We all talked about lenders chasing all kinds deals with very aggressive terms because there was just SO much money out there begging to be lent.

But we also have to remember that these defaults are still near historic lows. And perhaps more important (a) buyers are still looking for deals at right prices, even on defaulted properties, thus mitigating damages, and (b) most important of all, real estate fundamentals are solid thanks to generally rising rents. So don't panic -- yet.

By the way, if you want to learn more about CMBS, check out Simple RE. I just saw it for the first time thanks to David Bodamer and it is clear that Kenny Pratt knows what he is talking about!

Saturday, July 28, 2007

Office occupancy: downtown boom, suburban swoon

In a post on Thursday I mentioned that downtown office buildings in some major markets were doing well, but that I was concerned about, among other things, rents and vacancies in the suburbs.

Here's a story in the Tribune confirming my suspicions. The gist of the article? Because of the subprime residential debacle, businesses that service the residential market such as mortgage companies, mortgage brokers, title companies and the like have given up 1,000,000 sf of their space, thus creating even more vacancies in the 'burbs.

Vacancies mean lower rents and lower sale prices in the suburbs. The real question is to see whether the trend continues over the long term or not. And will some tenants choose to relocate or move some portions of their businesses out of downtown to save money? If the predictions of rising downtown rents are correct, I would not be surprised.

Taxing carried interest as ordinary income - an awful idea Congress should not "promote"

A bill has been introduced in Congress (HB 2834) that would change the way many real estate developers -- most of whom are entrepreneurs -- would be taxed.

Okay, you may ask: what is carried interest? Better known in my circles as a "promote," carried interest is the percentage of a deal involving a venture that the developer takes as compensation, usually through a limited amount of capital investment and a lot of sweat equity.

Often what happens in a development deal is this: The developer (or "promoter") hooks up with a party with funds to invest (the so-called "money partner"). The parties reach an agreement on how the profits from an investment are to be split.

Without boring you with too many details (you can hire me if you want more), when the deal is done (or maybe when there is a financing that allows the members to take cash out), the first dollars go to the money partner, which gets its money back plus a preferred return, after which the profits are split according to a deal-specific formula. Almost always, the more profitable a venture is, the larger the promote for the developer, even with little or no money of its own in the game.

The current law is that the promote is taxed as a capital gain, which has a much lower (15%) tax rate than ordinary income. The bill seeks to tax promotes as ordinary income.

This is in my opinion a bad idea on so many levels. I won't get into all of them here, but the ones I hate the most are as follows. First and foremost, this tax will discourage developers from taking risks. I think a calculated risk is a good thing and ought to be encouraged. Marginal deals, even creative ones or maybe ones that preserve buildings or have character, may not get done. The added problem is the trickle-down. The fewer developments, the less construction, meaning less work for all the people down the ladder.

While I think the best solution is no tax at all, if the concern is to make sure the super-wealthy are not taxed in their entirety at the capital gain rate (Warren Buffett talked about that recently, I believe), then consider taxing carried interest above a certain threshold at the higher rate. There might be loopholes to close (e.g., the use of multiple entity structures to limit promotes below a given threshold), but it protects the smaller developers and encourages them to continue to take the risks that often lead to the most interesting transactions.

Friday, July 27, 2007

Brookfield, Kimco income rises

Income of two major real estate players in two different sectors is rising.

At Brookfield Properties net income doubled thanks to higher rent and asset sales. And at Kimco net income rose 18%, also on higher rent and on acquisitions instead of sales. As mentioned previously, strip center vacancies at properties such as those Kimco specializes in are up. But Kimco, the biggest player in the game, is apparently and not surprisingly doing a good job of keeping occupancy up. And if the NOI of individual properties rise, then so should its value, notwithstanding any subprime lending crisis.

Thursday, July 26, 2007

More stories about Mayer Brown

I have written before about Mayer Brown Rowe and Maw, a firm I have admired over the years. We all know about the Refco matter and there's another lawsuit out there that I chose not to write about.

It was therefore difficult for me to read this story, originally in Legal Times, about turmoil at the firm, management changes as Chicagoan Ty Fahner (a lawyer's lawyer who reached a mandatory retirement age), the prospect of much more de-equitization at other offices (or more?), departures of major rainmakers, management issues and the like. The story did not paint a pretty picture about one of my favorite big firms.

I realize this could just be the sour grapes of former partners (some of whom chose to remain anonymous), but my gut says there may be more to it than that. As the future progresses we will have to see how things fall out.

More on Zara Younan

Yesterday I quoted Zara Younan, who was looking to buy a building here in town from The John Buck Co. The Sun-Times has an interesting profile on Younan today and his quest to build the world's tallest building, perhaps in Chicago.

Based on this story, Younan reminds me of a restaurateur in the Chicago area from my childhood named Sam Sutter. Sam's most famous place was the King's Palace steakhouse, which, for you Chicagoans, was located on the current site of the Honda, Infiniti, Volvo, etc. dealers in Rt. 53 in Lisle. (It burned down in the 1970s.) Sam was an immigrant (from Armenia, if I recall correctly) who wore his Americanism on his sleeve. Younan reminds me of Sutter, and that is a good thing in my opinion.

My only concern? He's not the first guy whose has wanted to build the world's tallest building. The cost will be huge (to borrow a Donald Trump-ism), and the last person who tried to do this in Chicago, alas, failed. I nonetheless wish him well. People with moxie are often what make this market work.

Rents up 12%; vacancies down. Good news for (some) downtown landlords

Cushman & Wakefield is reporting that office rents in the second quarter of 2007 are up 12% compared to the same period in 2006, with vacancies at a seven-year low. Apparently, and not shockingly, New York and San Francisco are leading the way. We also know that downtown Chicago is doing well, too. So be happy if you own a building there.

I'm not trying to be Mr. Pessimist, but, just like all politics is local, so is real estate. What about suburban rents? Some are well, and others not. Some markets may be slow for a long time. Note the following from Bloomberg's story: "The country's highest office vacancy rates in the second quarter were in Dallas, at 29 percent, and Atlanta, at 24.6 percent. Rents in Dallas rose 5.2 percent, and in Atlanta they dropped 1.4 percent. Both cities are feeling the effects of development booms from the past several years...."

So, if you bet right and bought in those markets where land is scarce and demand high (and what in the US is more scarce than NY or SF?), you are a big winner. But don't take this report to mean that the picture is rosy everywhere. But the news is at least, at the end of the day, good overall.

Wednesday, July 25, 2007

Real Estate and the Chrysler -Cerebrus sale

You might be wondering what the Chrysler-Cerebrus deal and the inability of the investment banks to sell the debt has on the commercial real estate market. Perhaps none. But let's talk it through.

Chrysler is a company in trouble. If it was dirt, I'd consider it B-piece or a low-tranche debt in a CMBS deal. But what about stronger companies? Yeah, credit is tighter but that just means you do not leverage a deal as much as we've seen.

Many dirt deals are not done with huge amounts of leverage. Sure, we hear about the super-leveraged transactions and even do them from time to time, but they are probably the exception. Commercial real estate is still on the rise, or so says the Fed's Beige Book that was released a few minutes ago.

More importantly, you still have the mezzanine market to consider and to use for high-leverage real estate deals, though probably not for the low-cap rate purchases. I used to do much more mezz financing than I do now, but money is still out there. And it'll be out there for corporate transactions as well. In fact, Goldman is raising capital for a $12.5 billion "rainy day fund" for mezz financing of corporate transactions. I think this kind of against-the-herd thinking is nothing short of genius.

Where there's money to be made, lenders will be there to finance it, and deals will be done. They may not be 11-digit deals, but they'll be done.

Sales: GE closes suburban Blackstone deal, and only flips one. Meanwhile, other buildings taken off the market

As expected, it did not take long for GE to close on its acquisition of the suburban portion of the Blackstone properties acquired in the EOP deal. Unlike other deals, only one property was flipped, and that was because it was in Bannockburn, which is outside GE's target property area. It is nice to see that GE is looking at a mid-term hold on these buildings. They have high occupancy and should remain that way.

Meanwhile, back downtown, two different JVs led by John Buck Co. and Golub & Co. have pulled office buildings off the market after negotiations with two California based companies to acquire 200 W. Monroe and 225 W. Washington. Crain's reports that the Buck deal had a signed LOI (glossary: "letter of intent" -- usually but not always non-binding) but pulled out anyway. Perhaps both sellers were not getting the returns they expected.

What stuck out in this story the most is a quote from Zara Younan, principal of the eponymous Younan Properties, Inc., the prospective buyer in the Buck deal (the Golub buyer was supposedly Triple Net Properties, LLC, and I've been on both sides of deals with them). According to Younan, when discussing prices based on current higher debt rates, “If you are not getting the debt right, it’s probably too pricey in the first place.”

Write that last sentence down on a Post-It and stick it on your monitor, refrigerator or anywhere you will see it multiple times a day.

Freed wants an additional TIF for Carson's ironwork. The odds of that happening are...

....uhhh..... given the mayor's past love for wrought-iron, about 103%? Actually, if some money is needed to preserve the Louis Sullivan masterpiece, I say go for it.

Oh. Here's the link. You will also find dirt on tenant negotiations and the financing.

Tuesday, July 24, 2007

This could slow some things down a bit

Bloomberg reports that the CDO market is practically at a standstill, meaning losses in underwriting fees and very tight credit, even for the likes of Blackstone and KKR. If you do not understand collatertalized debt obligations, click on the link above and read. And read about the relationship with collateralized loan obligations and the speculation that more Bear Stearns-like bailouts may be on the way.

This could slow down the huge deals being done at low cap rates. It might also slow down smaller and mid-market deals, but probably not to the same extent as other methods of financing are available.

If I'm not a partner, what am I? Principal? Owner? Shareholder? Or Fungible Billing Unit?

I know, I know, I know: law, especially BigLaw, is becoming a business more and more each day than a profession. Tom Collins at morepartnerincome had a very interesting post on law firm partnerships today.

Citing a post from the from the always-interesting Carolyn Elefant and an article by Janet Ellen Raasch, Tom contends, "The truth is law firms have traditionally not recognized “ownership” shares in a law firm the same way ownership shares have been viewed in the commercial world. Even given that tradition, something new is going on. Things are changing. A transition is underway."

On the other hand, you have people like Thomas Grella, a MidLaw managing partner and chair of the ABA Law Practice Management Section. Cited in Janet's articled, Grella, "Some see these changes as positive and leading to a stronger business model for law firms. Others see them as negative and driving away valuable talent. "Many of my current partners previously worked at big firms in big cities," says Grella. "They made the move to our firm not for money, but for values."

Tom Collins might well be right, but that does not mean I have to love the idea. I'll take Tom Grella's business model any day, regardless of the income drop. I became a lawyer because I like helping and advising people and being collegial with others in a so-called "learned profession". I did not become a lawyer for the purpose of being a fungible billing unit. While that might be somewhat naive -- especially at the associate level -- I think it is or should be a realistic goal at the partner level. Work-life balance, mentioned by both Carolyn and Janet, is as important to me as it is to younger attorneys -- nor is it gender-exclusive. And that's why I have the time to write today; otherwise, I'd be billing already.

My take? If you are at a firm that has or plans to adopt a model of fungible partners, de-equitization, lengthier partnership tracks and the like, then please consider dropping the title of partner. Shareholder is probably a more appropriate term. Leave the word "partner" to those of us who actually intend to be partners in the true sense of the word.

7/25/07 UPDATE: Bruce MacEwen made an impassioned please today at Adam Smith, Esq.
that I had to share. According to Bruce, "This is equal parts an economic question and one of simple humanity. Our firms will not be competitively robust, and places of intellectually creative ferment for clients, if they are shackled to interminable payment streams for services already rendered. At the same time, senior partners are the embodiment of how we achieved our status today. "

Monday, July 23, 2007

CalStrs, ProLogis and Lehman - another ho-hum ten digit industrial deal

Here is the scoop on the $1.85 billion sale by CalSTRS of one of its biggest industrial portfolios to a JV of Lehman and ProLogis. CalSTRS was advised by my friends at CB Richard Ellis Investors, who have a great track record with this institutional types.

According to the story, "There are 114 industrial properties in the ProLogis-owned portfolio, totaling 24.7m s.f. (0.185806m2), located in Reno, Las Vegas, eastern Pennsylvania, Chicago and Tejon Ranch in Southern California." And (as I shake my head in disbelief), the cap rate was below 6% and might have been lower had there been more California dirt involved.

Plunging residential sales and raw land prices

Because it is new construction it is really development, and thus within this blog's bailiwick. New home sales last quarter were at lows not seen since the early 90s. And there's no end in sight.

In the city, you have a "glut" of new buildings online or under construction. I use glut in quotes because we've all been talking about this for, oh, seven years, and things bounce back. If it isn't and prices plummet then I guess I'll have that pied-a-terre I've always wanted sooner than later.

The suburbs actually scare me far more. There sales are down to levels last seen in the recession of the early 90s. Most firms have laid people off and some companies are going under or on the brink. And there are rumors that new developments, even some with models, are just being shut down, sold off and left as farms for the foreseeable future.

This can bring down land prices, which may be good from my perspective as a developer's counsel. I spoke to a source of mine who was looking at two properties. One was on a corner in Bourbonnais, near my home, on a corner but with some development issues because of the grade and possibly obtaining a curb cut from IDOT, and the other was on Weber Road in Crest Hill, near where I grew up.

Amazingly, the asking price down here for raw developable land was far higher than that than on Weber Road, and the latter property was fully entitled. What does this mean? Either I know nothing about land values or some land down here is way overpriced. Call me an egomaniac, but I'm betting the latter.

Dear Chicagoans, please stop complaining about parking costs

I could not believe this story in the Sun-Times today about people complaining about paying $9.00 to park for the day at a surface lot at Clinton and Kinzie. (Full disclosure: I often park my SUV there when I go to my Chicago office, so I know the lot well. The usual attendant is a great guy.)

Those rates are only going to go up as more parking spaces are taken up by development. Try parking in New York, or downtown LA or Century City. And don't even go to SF. If it gets to be too much, then don't drive downtown.

By the way, there's still some comparatively cheap parking in downtown Chicago. And other than Clinton and Kinzie, no, I'm not going to tell you where it is. It took me long enough to find some of these places and there's enough competition for the spaces as it is.

The best real estate investing book? Experience.

Did you stumble upon this site because you are a budding investor looking for education and advice about investing? If so, I've been meaning for a few days to link this great post from bawldguytalking.com about this very subject.

There are good books out there, but the books, while well-written and well-intentioned, are not only not a substitute for experience but could end up costing you in the end. I love this quote from the post: "The moral of the story? Most folks investing based upon short term observation, or a “really good book they read” are, many times, creating the environment for their own personal train wreck."

This also reminds me of the old joke: A tourist stops a New Yorker on the street: "How do you get to Carnegie Hall?" The answer?

"Practice, practice, practice!"

Believe me, I've read more than a few excellent books on real estate investing and real estate law, But I am a better lawyer and dirt guy than I was ten years ago because of practice, practice and more practice. There is just no substitute for experience. Period. If there was a quick and easy solution to how to do this, we'd all be doing it. You live, you learn, you move on to the next deal and you (hopefully) get better each time.

Friday, July 20, 2007

CMBS update - looks like Moody's analysts get to hit the Hampons early today

Moody's Investors Service, one of the major rating agencies, says it is being passed over on 75% of CMBS rating assignments because of tighter credit standards than its competitors.

This is just like me choosing a lender. One lender makes me do a, b, c, d, e, f, g, h and i and its competition only makes me do a, b and c. All else being equal, who do you think I choose? You shop agencies just like you do lenders.

Of course, the people who might get hurt are those expecting to clip the coupons. For a great analysis of the situation, check out Mike Shedlock's thoughts on the situation. Here's a stellar sample of his thoughts:

"So this talk of a "tough stance" by Moody's is a total crock. OK so maybe Moody's is losing out on a few ratings because of shopping around. So what? Not playing the ratings game scam is easy to do now with all of these blowups we are seeing. It's much tougher to do what needs to really be done, and that is to downgrade much more debt tha[n] it has. Moody's is obviously taking the easy way out on that score. And the fact that so much more debt is deserving of these downgrades shows you just how badly Moody's failed to do the right thing in the first place."


Thursday, July 19, 2007

A culinary tour...of Bolingbrook? Yes!

What does food have to do with dirt? Development, development, development, my friends.

Let me say this right out of the box: I come not to bash Bolingbrook but to praise it. My parents moved to Bolingbrook when I was a little kid, and I consider it my hometown. And I still own property in Bolingbrook.

I've written about this to some extent before so I will try not to bore you too much. Bolingbrook in the early 1970s was a small town in the middle of the world's largest cornfield. No stoplights, one grocery (Totura's, which is still in Lemont), no post office, one fast food restaurant (Mr. Quick), a 7-11 and, if I recall correctly, a Union 76 truck stop and three gas stations (Shell, Standard and Hauck Oil [now Speedway]). That was about it.

The growth of Bolingbrook into a village of 75,000 has been a sight to see. And I have enjoyed the ride, even though the 70s and 80s were bumpy because of crowded schools, congestion and other growth-associated problems. It took about 20 years and my mother's neighbor, Roger Claar, to point the ship in the right direction.

So, when I read a story in the Tribune about being able to go to Bolingbrook for what amounts to a progressive meal of good dining, I am excited. And they barely mentioned Ted's Montana Grill.

Okay, no Arun or Charlie Trotter. And that's okay by me. There's some even nicer dining in Naperville if you can find parking on a weekend, and Chicago still beckons. It is just nice to know that, when I visit my hometown, my dining options are not limited to White Castle (not that there's anything wrong with that).

By the way: Bolingbrook is, in my opinion, a lesson for the powers that be in Kankakee, Bradley and Bourbonnais about development -- yes, it is great, but it comes with a price until the tax revenues catch up with the infrastructure needs. I encourage them to get in touch with Roger to see how he did it.

Wednesday, July 18, 2007

REIT prices down, insiders buy...

Just when I report that REIT prices are in the tank, we learn that insiders are buying at a rate higher than at any time in the last six years, so you know what that means. Either stock prices will go up or the value of commercial real estate will take a dip. Or are people just enthusiastic about the market conditions?

Macy's could be back on the block

Just when the rumors about Macy's start dying down, they pick up again. But this time the suitor is not Andrew Lampert but KKR. Or so reports the AP this morning. According to the story, if KKR buys they will keep current management in place, so hopes of Chicagoans seeing the Marshall Field name back are probably not high. It will be interesting to see how this one plays out, especially with the value of Macy's dirt that is out there.

Block 37 - it just never ends

The star-crossed Block 37 saga goes on and on and on. According to the Tribune, the largest tenant in the new office portion of the building, Morningstar, is suing the previous developer, Mills Corp., over the size of its premises. Originally, the financial service firm planned to lease 211,000 square feet, but apparently with the building closer to completion the remeasurement of the building is indicating that the space will be something more like 237,000 square feet.

Premises measurement in a new development can be complicated. The typical standard is that of BOMA, the Building Owners and Management Association. There is virtually always a “load factor” calculated here, which is a multiplier that takes into account the tenant’s pro rata share of the common areas of the building. We’re talking more than 10% here, though.

I have not read the lease, so I have no idea what it says about the measurement or remeasurement of the premises. Nor do I have a clue about the lease negotiations, but a lease that size almost had to be heavily negotiated. There are ways to deal with this issue that you can include in the lease, such as capping the rentable area regardless of the actual final measurement, but they may not be very palatable to the landlord. My guess is perhaps that no one thought the numbers could be off that far, which is why the cause of action is, according to the story, for fraudulent misrepresentation, which is not easy to prove.

Is there good news? Morningstar will still be the anchor tenant and the project will be completed. This appears to be just a matter of money. Who pays, if anyone, appears to be an unresolved question, since Mills is not only out of the deal but is owned by Simon Property Group. Golub & Company is developing the office portion and it is in court with Mills over the residential portion of the property, which is now being developed by Joseph Freed & Associates.

I need a scorecard! And keep me away from Block 37 for, oh, a few more years.

Tuesday, July 17, 2007

Virtual real estate - a passing fad?

For so many years, electronic game makers have tried to create realistic lifelike gaming experiences on a PC. Do you old-timers remember the game Myst?

One of the most ballyhooed of these experiences is Second Life, the virtual life experience where people literally live online through characters. What makes it important from a dirt perspective is that Linden Labs and developers sell virtual patches of real estate -- yes, your own little virtual universe -- not to mention all kinds of other items. Some big companies signed on to the idea thinking that it could be a good promotional opportunity.

Personally, though I have been a computer junkie for many years, I never got Second Life. I did check out the website but never registered. Maybe I am too old to get it.

Or, perhaps that fad -- not to mention Second Life itself -- is peaking. Revenues are down. Even at peak times, with 8,000,000 registrations, apparently no more than 40,000 people are there at once (which I thought was good but perhaps some marketers do not). Major companies such as Dell, Best Buy, Starwood Hotels and Sun Microsystems have abandoned (or in Starwood's case, donated) their virtual dirt. The virtual residents seem to be flocking more to the prurient areas of Second Life, thus proving the correctness of the adage in that song from Avenue Q: "The Internet is for Porn."

Jenner might be deequitizing partners, but the dirt guys look fine

Jenner & Block just announced that Ron Grais is joining the firm from Schwartz Cooper.

Ron is a senior guy who has been around the block more than once and on all sides of the deal, including as a developer. I don't know Ron personally but I do know his work and some of the projects with which he has been involved over the years.

With its first-rate bunch of litigators, Jenner has never really been known for its real estate practice. But Don Resnick, one of the deans in the field and someone I have crossed paths with once or twice, is there and the addition of Mr. Grais only strengthens Jenner's hand in dirt.

CalSTRS to add $12 billion to its real estate portfolio

Thanks to The Real Estate Bloggers for finding this gem. $12,000,000,000's a hefty number....we are talking 30% assets in dirt, it appears. I've done deals with CalSTRS in the past, and I can tell you first hand that they are savvy and smart investors.

I guess I was a little surprised by some of the analysis. London, after all, has among the highest property values in the world, but it also has some of the highest rents and the lowest vacancies. I always thought our dirt was comparatively cheap to that in Europe. But if they say the European market is a good place to invest, it is hard not to listen.

UPDATE: Now that I think about it, maybe it is both an investment play and a hedge against an ever-falling dollar against the pound and the euro.

Monday, July 16, 2007

Deequitization: not just in the US anymore....

I've written in the past about some of Chicago's best firms deequitizing partners that do not meet the firm's productivity "standards". This is a trend all over the country these days.

But it is world-wide now. British firms were always known for their lockstep compensation packages (a la Cravath in New York), lower hours and tenure system. But when one of the Magic Circle firms, Freshfields, is doing the same thing, you have to sit up and listen.

It all come down to this: you wanna do the BigLaw thing? That's great. But the so-called "good old days" are over and have been supplanted by business concerns. The trade-off? Phenomenal compensation that you, in a word, EARN.

What buildings AREN'T for sale?

Just when you think things have to slow down, another portfolio of Chicago office buildings goes on the market. I can't blame them given the IRRs you'll get on such a short hold. You know those nice metal plates on the fronts or in the elevators of buildings identifying the owner and manager? I'm starting to wonder if a piece of paper and a laser printer might be a better idea.

Did REITs overcorrect?

I'm not sure. I did take some money out of them recently given the plummet in that market. But some analysts are suggesting that, if you make the right play, some blue chip REITs are undervalued right now. I'll leave it to you to decide; after all, it is your money, not mine.

Credit where it is due

In a previous post I teased renowned architect Frank Gehry for receiving a chunk of the Inland Steel Building, only to have its owners decide to flip the property and take a tidy profit. Gehry wanted to be a long-term owner.

Given the news over the weekend that the building has been sold to Capital Properties LLC, while Gehry is going to keep his interest in it, I have to give the guy credit. He not only meant what he said (which of course does not surprise me), he found a way to stay. That is very cool, and I say good for him.

Friday, July 13, 2007

Strip mall vacancies on the rise

Check out David Bodamer's post on strip center vacancies going up. That's the bad news. the good news is that at least rents are continuing to rise.

B of A wins LaSalle Bank

I'll admit it: I thought other bidders were better fits for LaSalle Bank because it would be better for the bank to retain some of its autonomy -- and its name -- that I think would have happened with someone other than Bank of America. I just thought that would be better for Chicago and for its business community.

But with the Dutch Supreme Court ruling in B of A's favor, that hope is gone, and the Charlotte-based behemoth finally has its strong foothold in Chicago. It also eliminates the possibility of massive litigation. I hope they keep the LaSalle spirit in underwriting loans. I hope they will be as good a corporate citizen as ABN/AMRO has.

Thursday, July 12, 2007

More good guys doing good -- and making money

The other day, I wrote about Charlie Munger doing the right thing with a bookstore in Brentwood. Today is a project on a smaller scale, but I think it will have a great positive impact on my community.

A team of investors is getting together to expand the local Hidden Cove Family Fun Park to include a 50,000 sf indoor sports facility. This will be a smash hit in this very sports-oriented, kid-friendly community.

Of the four investors, I think I've met Greg Yates just once, at a golf outing. Nice guy. I have worked a little with Jeff Bennett and his firm here in town, and again, I like Jeff. Blair Minton and I have not worked together, but he is a neighbor and a friend and I think very highly of him.

All in all? Good guys doing good work and virtually certain to make a nice return on their investment. Congratulations!

P.S. Can't you add an indoor driving range? Please?

More concerns about CMBS defaults...

Fitch Ratings (the third place agency behind S&P and Moody's) put out a report yesterday warning of potential defaults in the CMBS market because, raising rents notwithstanding, some owners have had "overly optimistic expectations of future rental rates, sales growth and market growth."

Lenders have already reacted. While there is still a ton of money chasing deals, credit has tightened and interest rates are up. And it is harder to get a good price on a building these days. Properties have been selling at cap rates that boggle my mind.

On the upside, even if there are some defaults, we are at historical lows right now, so a correction is almost inevitable. The lowest tranches and the B-piece (unrated) buyers are the ones most likely to be affected here, and they get high returns in exchange for that risk. I don't think we are in for a crash, just perhaps a return to some semblance of reality.

Wednesday, July 11, 2007

Today's interesting incongruity....conservation developments

There's a new development that is trying to get off the ground near my house. Its name is Rhapsody Cove. I've seen some of this developer's work in the past, and my reaction was, "Boy, I wish this near where I live, because I'd like to love there.

Alas, like most of my local friends who could afford to live there, I already built a nice house and put too much into it to move. Plus the development is too far from the center of the action for me. Besides, the costlier the house down here, the harder it is to sell; I've seen some houses go three years, even in a booming market, without a sale.

Now, this development is good enough that it may convince some people to go there or others to move down here to take advantage of the ponds, trails and open space. I hope they will succeed, though I don't think it is a slam dunk.

This brings us to the interesting incongruity. You can call the developer and get a "muddy tire tour" of the ecologically sensitive development. And they'll come pick you up -- IN A HUMMER! Now, I own a big honking SUV and I'm no Al Gore, but I find it funny that a "conservation community" gives tours in a Hummer. Maybe it is an alternative-fuel Hummer like Arnold plans to have. Good luck!

Mayer Brown & Refco - not a new law firm

First they get criticized for de-equitizing non-producing partners. Now the firm is under fire for a report that suggests culpability on the Chicago-rooted firm for its work in the Refco bankruptcy in 2005.

According to the WSJ, "The 416-page report by bankruptcy examiner Joshua Hochberg takes Mayer Brown to task for having structured "round trip” loans allegedly designed to move bad debt off of Refco’s books." Mayer denies the allegations. And, among others, Grant Thornton is also apparently implicated in the report.

Does this mean Mayer is in big, big trouble? I hope not. I know a few lawyers there and have worked with (and against) them enough to have tremendous respect for the firm and its attorneys. I should also note that I don't think there is any allegation of criminal wrongdoing on the firm's part.

But there is an anti-lawyer climate out there right now. First Jenkens & Gilchrist goes down because of one or two bad apples. And certainly Milberg Weiss and perhaps Lerach Coughlin may face a rough road ahead. But Mayer? I just can't see it happening. But then I never thought Arthur Andersen would close shop either. Just as Andersen was the "auditor's auditor," I think of Mayer as the "lawyer's lawyers."

REITs in the tank this quarter

Well, the long streak of continuous REIT profits had to end sooner or later. I noticed this over the weekend while looking at my own investments, and The Wall Street Journal confirmed it today: REIT returns were down 9% in the second quarter. And it could have been double that but for a rally. The usual reasons are cited: increased borrowing costs, concern about the subprime residential lending disaster causing a spillover effect (though it has not happened yet), yadda yadda yadda. Maybe the uptick will be helpful for the 3Q, but only time will tell.

Tuesday, July 10, 2007

Brendan Reilly, Downtown's new alderman, flexes his muscles

It did not take long for Brendan Reilly, the new 42nd Ward alderman, to show that he does not want to be seen as another Burt Natarus. Natarus (who, BTW, I really like because I think he calls everything the way he sees it -- unlike just about any politician in 2007), was criticized by some for being too pro-developer.

Reilly came out today against the proposed demolition of the Lake Shore Athletic Club and its conversion into yet another high rise condo building. The current owner, Northwestern University, and the developer, Fifield Cos., have been contending that the existing building cannot be reused in any economically feasible way. Reilly's opposition spells trouble for the proposed project.

Fifield intends to fight. It apparently contends that “Once the actual legal and construction-related issues are debated, we feel confident that the concept of re-use will prove to be the lowest-and-worst use for the property.” (Is it me or does this statement come off a little bad?)

I'm torn because I don't know who is right. The building is beautiful and I'd like to see it preserved, but I also understand that the challenges of redeveloping such a building may be too much to overcome. On the other hand, I've also seen some pretty "tough" re-use deals turn into moneymakers.

Want to be a lawyer? DON'T do it for the money.

There. I said it again. People read about the $160,000 salaries that entry-level attorneys at the largest firms in the largest cities are earning and think, "This is the job for me!"

Please, please, please don't go to law school if money is your only goal. There are better ways to make a lot of money. You should either have a passion for law or for something related to law or because you want to be in business or some field where you think a law background might help. And read this story first if you don't believe me. Remember, the coin you read about is only available to the top grads of the top law schools at the top firms in the top cities. There are probably more entry-level lawyers making $30,000-$50,000 than $160,000, and they are saddled with debt up to their ears.

Disclosure: I've been on all sides of this argument, so I know about what I speak. I've been a small firm associate making close to market pay, a small firm associate making next to nothing, a government lawyer (you KNOW what that pays), a BigLaw associate making market and a boutique firm associate making market. I like what I do. Can I see myself doing other things? Yes. That is one reason why I write. And maybe someday I will do something else. But I have loved my work more than not the last 14 or so years, I've paid off my debt, and I have transferable skills that will work in a business now to boot.
Don't say you weren't warned.

What does $165,000,000 buy?

A nice portfolio of 50 grocery stores with 2.3 million square feet of retail?

How about 475 Fifth Avenue in Manhattan? (the intersection of 41st & Fifth, for non-New-Yorkers)

Those deals sold for $160 million; figure $5 million in costs and some extra cash to pay me.

Or, if you have some cash to burn, you could buy a single-family residence in Beverly Hills: the Hearst Mansion. It is on the market for $165 million. This is no Hearst Castle in San Simeon (now a state park), but it ought to be big enough for just about anyone: 29 bedrooms, three pools, a theater and a disco. (Disco? Time for renovations....) It will be curious to see who the buyer is and the final price at this behemoth.

I could not find any pictures offhand, but the estate was apparently used in The Godfather. So make an offer the owner can't refuse.

Goodbye, Macy's? We hardly knew ye, and no one cared?

Rumors are still swirling that Macy's is on the takeover block, with Andrew Lampert and Sears Holdings being the latest possible buyer.

If so, will anyone in Chicago mourn this transaction? And what of the dirt? Does the Marshall Field & Co. brand return in any way? (Sales are down, down, down, say the media.) Or does the iconic State Street store close like Carson's did, leaving a huge gap right across from the infamous Block 37?

UPDATE: Sears gave guidance today that it will not make its earnings target again this quarter. Needless to say, its stock plummeted. That does not mean Lampert can't go after Macy's, but it is bad news to say the least. Of course, there are those out there who have thought all along that Sears/KMart was a pure dirt play in that the land was worth more than the value of the company, and maybe the same is true with Macy's.

UPDATE 2: Citibank disagrees with other analysts, and it makes some sense, too.

Monday, July 9, 2007

Bershad plea update

Here is the latest scoop from Bloomberg on the David Bershad guilty plea to one count of conspiracy. He's going to pay a $250k fine and forfeit $7.75 million. Sentencing is set for June 2008, presumably to give prosecutors enough time to see how much dirt he gives them in order to recommend a sentence, which could be as high as five years. Bershad, needless to say, has had his relationship severed with Milberg. The story also reports that Bill Lerach will step down as the leader of his own firm within 60 days, so if that is true we know what that means. But then those reports have been floating about for some time now.
I know from reading the blogosphere that there are some people that will be ecstatic about this. Many people just loathe Milberg and their ilk. I'm not one of them. I just can't be happy about the misery of others. As for Bershad, some may say that he is getting off easy given the money he's made, but a felony conviction and its accompanying disbarment, with or without time, is still a high price to pay. And there's no guarantee that we know of that he won't serve some jail time.

Asia's new cargo shipping hub - the Philippines?

Looks like the state-owned China Ocean Shipping is serious about putting a major transshipping cargo (moving items between ships), shipbuilding and training facility somewhere in the Philippines. Can you say Subic Bay or Sangley Point (both former Navy bases)? Good. I knew you could. This could be a huge stimulus to an economy that needs it, and this project may make a significant rival to Hong Kong and Singapore, both of which are very expensive places to do business.

Before you ask what this has to do with dirt, this would be a $3+ billion project. I'll take a piece of that.

Bershad copping a plea?

Well, well, well...David Bershad appears to be cutting a plea deal in exchange for singing about what he knows went on at Milberg Weiss, the king of class-action firms that has been accused of making illegal kickbacks to clients in order to get the firm named as lead counsel in this extremely lucrative game.

I've never liked class action lawsuits, as they seem to benefit the lawyers and rarely the victims. But only a fool would not say that the Milberg guys were and are the best in the game.

So, just how are Mel Weiss and Bill Lerach feeling these days? And what about Partner A and Partner B?

Limited sells Limited

We all knew this was coming. And we all but knew a P/E firm would be the buyer. Limited Brands announced previously that it was going to sell Limited Stores and Limited Express to concentrate on Victoria's Secret and Bath and Body Works. A sale of 75% of Express has closed, and now 75% of Limited will sell for about ~$50 million, which Limited Brands says is a wash with no profits. That comes out to about $200k for a 75% stake in each store. I wonder aloud what the value of the retail leases alone would be.

But who was most arrogant?

Here's a good post on in-house counsel rating law firms based on customer service and "arrogance." The full list was not published in the article, but I note that Ropes and Gray was both on the "A-Team" in customer service and on the most arrogant list. That's sort of like Howard Cosell, Mr. Arrogance himself, being both the most loved and most hated sportscaster in the US back in the 1970s.

What I don't understand is why client put up with this. Only 32% of executives would recommend their outside counsel to a fellow GC. And only 25% think their primary outside counsel excels in client service.

But I don't feel sorry for the 70% that don't like their lawyers, because they ought to find new ones. If your lawyer does not return calls or e-mails promptly, find one who does. If your lawyer is Howard Cosell and you hate Howard Cosell, then get Chick Hearn or Vin Scully or Haray Caray or Ernie Harwell -- you get the picture. There's plenty of demand for good lawyers, but guess what? There's plenty of good lawyers, too.

My general rule on client communication is to respond as much as possible (I'm guessing 98% of the time) within one hour to a voice mail or e-mail, even if the answer is that I need more time to respond fully to a message. And I just don't see why everyone does not have that policy. In the days of cell phones and e-mail and BlackBerrys, in my opinion the only reason you should not be able to respond within that time frame is if you are serving another client. I learned this from the best lawyers I know, and it has been successful for me.

And others agree...

Check out posts from Dealbreaker.com (with a chart showing the out-of-control prices in London). Goldman's putting $4 billion of German dirt on the market. But what is more interesting is this quote from Fintag.com:

"As we are becoming known as the sage of the market for our startling predictions of "what happens next?", it is with great pleasure that last week the world was alerted to the great commercial property crash. With Goldman following our advice and Morgan Stanley starting to offload its worse performing property (which is most of them because rental income is below LIBOR) we are glad to be of service."

Rental income below LIBOR? For you civilians out there, that means the income from the property is less than the interest rates out there for commercial loans; e.g., you income on a property is 5.5% a year but interest rates are 6%. See a problem? (LIBOR is the "London Interbank Offered Rate -- the commercial loan equal to prime in the residential market.) Now, of course, there's the upside to long-term returns versus relatively short-term LIBOR contracts and a higher upside potential from holding land. But there's also much more downside potential.

Again, I don't think the sky is falling, but I will admit that I did some portfolio adjusting this morning.

Friday, July 6, 2007

Scary predictions

The Economist is probably the best magazine in the world. So, when it makes a prediction that (a) the private equity market is in for a storm, and (b) the storm may end up hurting pension funds and insurers and other major investors big-time, and (c) the result could be huge defaults on debts, bankruptcies and redundancies (that wonderfully British term for layoffs), I listen.

There's been a heck of a run. But if this prediction is correct, and the life blood is taken out of many companies in order to continue large returns -- not to mention the massive earnings (I can't say income, since they are not taxed at the income rate like us normal folk) these new-fangled Masters of the Universe command -- then we are in for a major correction in the equity market and perhaps one in commercial real estate to boot. I'm not going to be Chicken Little, because most dirt is still comparatively cheap in the US, but I am keeping an eye out for what may be to come. And I'm sure my opportunistic clients, some of whom are largely on the sideline right now or raising funds quietly to take advantage of the next downturn, will be ready too.

Location, location, location?

I've heard of interesting places to build commercial property, but this one takes the cake. The Philippine government has recently canceled a permit for a Korean developer to build a spa on the crater of the Taal volcano, which is about an hour's drive from Manila followed by a boat ride across a lake.

Now, I know this area. It is stunning. I've not been to the volcano itself, but I've been to the area, including scenic Tagaytay, and I've even thought about buying some property there, as other expats and wealthy Filipinos have. There is some beautiful Western-style developing going on in that area.

The story, from Forbes, hints that there are some interesting land title disputes and some possible inter-governmental infighting, which is often the norm in the Philippines. (For you old-time title nerds out there, the Philippines uses the Torrens system, but much of the land is unregistered, so quiet title actions are very common.)

I'll contact some of my sources in Manila about this story, and if I find out anything interesting, I'll let you know.

Thank you, Charlie Munger

As an avid reader, I love seeing stories like this. Charles Munger, the founder of one of LA's most prestigious law firms (and, of course, Warren Buffett's partner in Berkshire Hathaway) owns property in Brentwood that he planned to convert to condos. Ho hum. But, so the story goes, the location is the home to Dutton's, perhaps LA's best independent bookstore.

In response to neighborhood opposition, Munger has changed his plans and will build retail instead. Of course, retail is hotter than residential right now. But, given the low rent Munger says he will charge the bookstore and the way the construction will proceed to minimize interfering with business, he is definitely not maximizing his profits. So I say thanks, Mr. Munger. It is refreshing
to see that there is more in the world than making a buck.

This quote from the LA Times story is so spot on: "'Bookstores are fragile,' he said. 'Jostle them slightly and they never reopen. The best thing is to make sure it never closes.'"

Thursday, July 5, 2007

Lawyers as (non) entrepreneurs

I guess I needed this post from New York Lawyer (free sub. required for now, who knows what with the ALM merger announced today) to remind me that most lawyers are not great entrepreneurs. The gist of the story is this: the anonymous author (a BigLaw associate) has a friend who went solo and now appears can't wait to return to the womb.

Here's why, according to the author, solo practice sucks, and my rebuttals from real life experience:

1. Yes, you can work whenever and wherever you want, but get used to using Mr. Coffee and making your own java.

Response: I have a good coffee machine in both my offices and brew to my taste. If I am lazy, oh boy, I'll spend $2 for Starbucks. Of course, one upside to going on my own for me is that I kicked my caffeine addiction. I don't drink coffee anymore; I don't need the coffee to keep me awake. By the way, I do also have to work when my clients need me, and yes, sometimes that means nights, weekends and vacations. But this is why I have a laptop and a BlackBerry.

2. IT problems -- good luck.

My partner would agree with you, as he has had some laptop problems. But, knock on wood, I've had no real problems to speak of. My Chicago office high-speed connection is part of the rent, so if there's a problem the landlord takes care of it. At the home office, my WiFi and Cable modem have gone down once or twice, but I have a nephew at hand to help when I cannot fix it (which is rare) and the BlackBerry for backup. My business phone service is amazing.

3. Finding work is tough, and there's always someone around to help answer an obscure question.

Well, rainmaking is tough. I'll grant you that. But at least you control it. If the partners don't bring in the business, you get laid off. I'd rather fend for myself in that regard, but then, I am at a different stage of my career. As for obscure questions, I belong to a superb listserv that can help with almost anything. I've also made enough friends in the business to make a call or two if I am completely stumped.

4. The inability to specialize, the lack of prestige and not knowing your paycheck will be auto-deposited.

That is a one sentence summary of three paragraphs. But I think that is was the author was implying. I am still a specialist, pure and simple. And with my overhead I'll cry about my lack of BigLaw prestige all the way to the bank. Collections have not been a big problem for me, also knock on wood. Granted, with law school loans the way they are these days, I will concede that that a fat paycheck every two weeks is good, and paying self-employment taxes sucks. Fortunately, I am in a different circumstance than many, but being able to pay yourself is important. It is why we lawyers do this.

Now, I know this article is satirical, but it rings true to the extent that so many lawyers are risk-adverse -- until they don't make partner, get laid off, burn out or are deequitized. Heck, I am too risk-adverse for my own good. But I'm also working at home today in ultra-casual clothes and preparing to knock off for the day at a civil hour.

The moral of this message is not to criticize the author, as it was a great story for what it was. But DON'T let posts like that scare you out of fulfilling your goals, be it BigLaw partnership or doing your own thing. Life's too short not to at least try.

Tuesday, July 3, 2007

Interesting incongruity in hotels

The WSJ is reporting that business travel is becoming more and more Spartan, while Barry Sternlicht is planning to develop not one but two brands of luxury hotels to compete in an ever-increasing market. Either someone is wrong, or both are right and with different target audiences. The business travelers are staying at Holiday Inn Express these days, while leisure travel or real high-end travel may go to 1 or Baccarat. I find the dichotomy interesting nonetheless.

On a related front, I enjoyed reading Larry Bodine's ratings of airlines and hotels for marketers yesterday. While I am not a marketing professional, I tend to agree with his assessments.

I must be getting old...

...if I am reading about the history of shopping malls. Here's a link to a project on the subject, courtesy of David Bodamer and the Retail Traffic Court Blog. Actually, the oldest malls date to around 1920, so I guess I feel better. And I even did some work on something related to Country Club Plaza (widely regarded as one of if not the first mall) some years ago.

Before going to law school, I was a Ph.D. student in history. I love reading history books and biographies, and if you don't believe me, you ought to see my library. This was a nice little synopsis of mall history that made me want to read more. I was disappointed that they did not mention the first vertical shopping mall, which I believe was Water Tower Place right here in Chicago.

Now that I've said all that, it s time to bill a little and then hit the bookstore! See, I told you so.

Monday, July 2, 2007

Downtown office vacancies down

This is good news if you have been buying downtown buildings. Vacancies are at a four year low, in the 12% range overall. The big news to me was the marked declines in vacancy in the West Loop and in River North.

Title Insurance - the decline of the lawyer's role in selection

Notwithstanding complaints that it is expensive and unnecessary (an article late last year from Forbes, no less!), title insurance is still a vital player in the real estate business. And I happen to disagree with the conclusion, at least from my perspective as a commercial guy who also needs extensive escrow services and other real estate related help.

Title companies can be either a huge help in getting a transaction done, or a huge hindrance. I have encountered both over the years. I have always tried to steer business to companies and underwriters that think outside the box to solve problems that less creative types thought were unsolvable.

Many people think that the lawyers control who picks the title companies to do the deals. And maybe some do, especially in states where lawyers are much more involved in the process, such as Florida or Georgia (where most real estate lawyers, even in commercial deals, are title agents and derive significant revenue from it).

But guess what? I really don't control who gets the business anymore. In fact, I haven't for years. Clients, or at least my clients, dictate who gets the work. Often it is because of business relationships that the title companies have wisely made with the clients, other times it because of the cheapest rate. But most often, at least for me, my clients pick (or try to pick) the company that gives the best service, regardless of price.

I was at a very fun title company function on Friday. Ten years ago, 80% of the people there would have been lawyers. Friday, 80% of the people were lenders, developers and other real estate professionals, with just a smattering of lawyers. I was really there not so much because I can steer tons of business but because I have developed long-standing relationships with this company and with the companies both here in Chicago and around the country.

I do wish that sometimes I had more control over this potentially vital issue, but I understand why I don't. After all, it is not my money that is being spent on the service, and I applaud the title companies who have been smart enough to focus their marketing efforts on those whose money it is. Just don't forget that, price and bread and circuses aside, service is still king.