Tuesday, December 30, 2008

Can you say eminent domain?

We lawyers like to joke about eminent domain and the high unlikelihood that this will occur, especially with retail malls. Of course, thanks to the horrible Keto decision, you can take someone's house to build a hotel.

That's because we are not in Venezuela. According to Peter Maclennan, Hugo Chavez apparently decided he didn't want a shopping mall to be finished and opened, so he announced that the mall will be "expropriated," or condemned. Malls are not socialistic enough, but a hospital or school is all right.

No, I do not see this happening in the US, even with an Obama administration. :) Seriously, though, I guess this is a reminder never to set aside anything as an impossibility. I have found from experience that when you say, "It'll never happen," it often does.

Sunday, December 28, 2008

Good Morning, Manila! (and Good Evening, Chicago)

Magandang Umaga! It is mid-morning Monday in the Philippines and Sunday evening in Chicago, and I just learned the Bears lost, blowing any chance they had of the playoffs. I never expected them to be even close, so I am not bummed out. Now I pin my hopes on a Rose Bowl victory by USC against Penn State.

I am still astounded by the amount of dirt being pushed here in the Philippines. We had a terrific visit yesterday to Tagaytay Highlands, an upscale, private real estate development about 60 minutes from Manila. The facilities, security and dirt were all nothing short of magnificent. The views are among the most beautiful I have seen. Gichael de Leon was kind enough to give us a grand tour of the facility, and his boss was good enough to give us a guest pass to the club facilities, which allowed us to eat at one of the many restaurants on site. We chose the American style steakhouse, and my US-imported ribeye was a touch of home 800 miles away. Many of the buildings are constructed with logs imported from Canada. Great attention to detail. We have some serious considering to do about investing for the future.

On the real estate front back home, I have a few tidbits for your consideration.

First it was the developers, who are concerned about short term debt expiring. Now retailers want a piece of the bailout action too. What next? How about real estate lawyers, title companies and bloggers? We did not even do anything wrong.

Here's the latest on CMBS delinquencies in commercial real estate. Is 0.64% really that bad? Or even the 2% being predicted? Would someone care to tell me what I am missing here? Is the sample skewed? Maybe the heat and humidity are getting to me.

Frustration department: interest rates are crazy low for residential real estate right now and leading many to want to refi, but credit is still tight to the point that the market is stagnant. The mid-2009 predictions, or about 150ish days after Obama takes the oath, are making sense for the beginnings of a turnaround. Let's hope we don't print too much money and/or drive ourselves deeper in a hole.

I am going back into the city tomorrow where I will havve a more reliable high-speed connection, not to mention air conditioning and a 40" flat screen TV. Comforts of home and all that. But I am really having a terrific time so far away from home. I miss my family, yes, but I am happy to be with my in-laws and enjoying the comforts and cultual awakenings of this place.

Saturday, December 27, 2008

Philippine Perspectives

Shopping here appears to be the national pastime. Forget basketball. Hit the mall. You can even got to Sunday Mass there if you are so inclined, with services in English and Tagalog. (Remember, English is an official language here.)

We are about to celebrate my mother-in-law's 80th birthday in an hour. There should be 200+ people in our yard here, and hopefully we'll have enough food. You never know how many people will show. The problem with estimating a crowd is that it is acceptable for the invitees to bring family and friends. And since my wife and I are the official hosts of the party...well, you get the picture. The mayor of Maria's hometown (pop. > 260,000) was kind enough to send over a tent.

A burger, fries and a drink: $1.50 US.

Two large pizzas: $9.

A party for 200 with food, two bands, a staff of 20 serving and all cheaper than you would think.

Going to a shopping mall literally halfway around the world from home and randomly running into Eddie and Carmen, friends of the family who have visited us in Bourbonnais: priceless. It's a small world after all.

And by the way, this mall (one of soooo many) is, in our opinions, nicer than the regional mall where we live. And it's about 98% leased at less than one year old.

Friday, December 26, 2008

RIP Al Meyerhoff

I was sorry to see Al Meyerhoff's obituary in the New York Times while trying to catch up on news from half a world away.

Al was a tenacious, courageous but affable litigator who spent his life fighting for the little guy. When I was a junior lawyer I was involved in a Proposition 65 lawsuit opposite Al and the NRDC. I remember Al on conference calls as the scrappy guy who wanted to fight, fight and fight until he won, but never in a mean spirited way. Even though we were opponents I could not help but respect him. Call him a true believer, if you will.

Requiscat in Pace.

Tuesday, December 23, 2008

A whole lot going on at year's end

I know there is a lot going on at home. Real estate developers want a bailout because so much debt is coming due. Thacher Proffitt, a firm I worked with a few times on CMBS deals, is dissolving, and that's sad. And there's so much more going on, even at Christmas -- to much to write about. But I am 14 time zones away, safely ensconced in Manila, where you walk outside and you feel like you are in a steam bath.


If you have never been to Manila, I recommend it for many reasons. First, if you are a dirt junkie, you will be amazed at the amount of real estate development going on, small, large or otherwise. Some projects look like they haven't changed in five years, while others are going up like kudzu on a tree in the South. Tons of condos and condotels, malls that make their US counterparts look tiny, and yes, an office building here and there, often for call centers such as the one across the street and complete with a 24/7 McDonald's and Jolibee. You can get some flavor of it all at the awesome SkyscraperPage Forum.

One common format I have seen is a mixed-use building, with a lobby and shops on the first two floors (or even a mall, a la Water Tower Place), offices above that, followed by a hotel and maybe private condos to boot up top. I assume they vertically subdivide these like you might in the US, but land titles are much more complicated in the Philippines, because you have registered (Torrens) land, unregistered land, squatters and adverse possessors and – you got it – no title insurance here. My late father-in-law was, as I understand, somewhat expert at this in his capacity as an attorney and judge here.

Tuesday, December 16, 2008

Happy Holidays!

I am swamped with year-end work right now, and I'm trying to cram it all into this week since I am leaving for Manila on Saturday night for the holidays, which means I also have family obligations here to which I must attend. That does not lead to much time to write here.

I'll perhaps post something about dirt issues in the Philippines once I get there, and I'll be back if something compelling arises. But if I don't have the opportunity to do so -- which is what I think might happen these next few days -- please accept my best wishes for a happy and healthy holiday season.

We often forget what this time of year is truly about. I'm going to take time to celebrate that true spirit of the season with my family and friends, and I hope you'll get to do so too. As I said to someone about balancing work and life, it isn't easy, and no matter how long you live, life is always, always, always too short.

Monday, December 15, 2008

GGP update: will Citibank lead, follow, or get out of the way?

GGP moved an updated press release stating, "[i]t has not reached unanimous agreement with its syndicate of lenders to further extend the maturity date on the $900 million Fashion Show and Palazzo mortgage loans. The Company is continuing its discussions with lenders regarding its loans."

According to the press, the word is that Citibank, the lead lender, is the lone holdout. Globest.com says that Citi is "heap[ing] requirement upon requirement for the REIT to meet." Now, we don't know exactly what those requirements are, but of course the cynic in me immediately says, "How much money has the government given them in a bailout, supposedly to lend?"

Whither Sears?

I have such fond memories of Sears. Just about any my age or older does. The huge catalog, the Christmas Wish Book, the retail stores, the candy counter. I think I just gained two pounds thinking about chocolate covered candy.

After watching the local segment of the Today show this morning, I read perhaps the most succinct story ever, the entire text of which I repeat below:

There's a dire warning from the chairman of Sears Holding Corp.

Edward Lampert said this may be the final holiday season for the Chicago-based retailer, as the company continues wrestling with falling cash reserves and expanding debt.

Experts say Sears' lack of cash could lower its borrowing capacity and prevent it from securing new lines of credit.

The retailer is now $4.5 billion in debt.

I thought when the deal went down that Sears was a dirt play, because the real estate assets weer probably worth more than the company. And people more savvy than I am thought so too. Friends and former employees I knew also agreed with the analysis.

But now, according to a Tribune article a couple of weeks ago:
Liquidity will be "paramount" for Sears next year, Morgan Stanley analyst Gregory Melich said in a Tuesday report.

In September, Melich estimated Sears and Kmart real estate was worth $7.5 billion and put the combined value of its Lands' End, Kenmore and Craftsman brands at $3.9 billion.

"We do not believe the brands or real estate have much value in the current environment and would likely be sold at distressed prices should [Sears] make a sale in the near term," said Melich.
Ow. That hurts. Sears must have 300,000 employees, too. And now the backstop for the deal is looking...well...weak. A Sears fire sale could have dire consequences in the retail business, not just because of layoffs but also because of co-tenancy clauses, which would snowball into other retailers going dark in malls where a Sears-anchored store might close.

UPDATE: Channel 5 has filed a correction, and, in the interest of accuracy, and I again reprint the story in full, to wit:
We want to make a correction on a story we reported about Sears.

Crains Chicago Business is reporting that rising debt and dwindling cash flows threaten to make this the last Christmas season for Sears. The company faces a short term debt of $1.9 billion.

We incorrectly quoted Sears Chairman Edward Lampert as saying this could be the last holiday season for Sears. Lampert did not make the statement and it was Crains, not Lampert, who drew this conclusion.

Sears says it has more than adequate liquidity and currently expects to completely repay this short-term debt by the end of the month.

We regret the error.
The Crain's story is for subscribers only.

On a completely unrelated note, for you journalists out there, I'm curious: does the AP Stylebook still discourage or prohibit the term "regret the error?" Back in the 80s when I actually knew this stuff, I believe the preferred verbiage was "The AP erroneously reported...."

Friday, December 12, 2008

GGP- day of reckoning?

Hard to say at this point. The stock's up 31% as I type. The company announced that it was able to refinance $900 million in debt, but that is not the $900 million that comes due today for the Vegas malls. There's no assurance of further extensions on those loans; I'd have to speculate that this is because Citibank has been playing hardball by wanting a retrade on another deal. And I guess the other banks cannot, have not or will not buy Citi out of its share of the loans, which is one way to skin that cat.

For those of you interested in the CMBS part of the deal in the event of a filing, this story on a Fitch downgrade will explain it well, and that those investors ought to be safe becauseof bankruptcy remoteness. Ah yes, substantive nonconsolidation opinions.....zzzzzz......

Have a good weekend! I'll be back if there is more to say. I may have to head back to the Office Depot liquidation sale at the brand-new branch near my house. So sad. That's a ten year lease going dark, by the way, although I do not know any other terms.

Wednesday, December 10, 2008

Hotel 71...it's baaack (on the market)

I promised to follow up here when there is more news about Hotel 71, and some moved this morning at Crain's.

The word is that Wachovia, the special servicer for the CMBS pool that took title to the property after winning a bankruptcy auction, has hired an Atlanta-based broker to seek buyers. Tough market, but, as the story notes, this will be an interesting test of the waters.

Also according to the story:

Complicating the transaction further, a buyer would need to spend about $20 million to finish a renovation..... One person familiar with the hotel expected it to sell for no more than $60 million, down from [the] $92.1 million...paid for it in March 2005.

In one of the few large downtown hotel sales of the year, Cornerstone Real Estate Advisors LLC paid nearly $80 million for the Hotel Monaco at 225 N. Wabash Ave., a block away from Hotel 71.

Hotel Monaco has 192 guest rooms, or so says Google. So Cornerstone paid roughly $415,000 a key. If the hotel sells for $60 and you have to do a $20 million PIP, you are all in at $80,000,000. Interesting symmetry. The difference is that Hotel 71 has 437 rooms, so your all in cost would be roughly $183k per key. Now, there are certainly differences between the hotels, and the Kimpton-flagged Monaco has some cache to it these days. But it is the same area.

The business question is whether the price works in this market and with new hotels on line in that neighborhood such as Trump's and the continuing hope that Shangri-La will eventually be there. The Inter-Continental sold in 2005 for an estimated $210k/key and the Westin on North Michigan at $180k/key. Take a look at numbers and prices in this press release from April and decide for yourself. After all, I don't make the deals, I just help get them done. And this ought to be an interesting one when all's said and done.

Tuesday, December 9, 2008

The Decline of GGP

After being interviewed today for a story on GGP, I noticed this piece in the Journal on the mall owner's decline (and hopefully not its demise -- the two week loan extension's up Friday). I'll let you digest it just as I still am doing as I type.

Maybe the last paragraph says it all:

The Bucksbaums, meanwhile, have seen their personal fortunes fall with the company's. According to friends, Matthew [Bucksbaum, the retired co-founder of GGP] and [his wife] Kay have decided to cancel their annual holiday party in Aspen.

State for Sale

Or so say the Feds. Here's a link to the criminal complaint against the governor. Enough said.

Monday, December 8, 2008

Sorry Sam - still no subscription for you

Yep. Yesterday, advisers, today, a Chapter 11 filing for Tribune Corporation. Even the Grave Dancer, much as I admire him, can't win them all.

"Over the last year, we have made significant progress internally on transitioning Tribune into an entrepreneurial company that pursues innovation and stronger ways of serving our customers," [Sam] Zell said in the [press] release.

"Unfortunately, at the same time, factors beyond our control have created a perfect storm -- a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt," he said.

The Journal's Deal Blog tells us this was never a good idea and people said so:
To many people, the math never worked from the beginning. Tribune’s revenues had been falling precipitously for years. Zell offered a generous $8.2 billion offer for Tribune to win against two other billionaires halfheartedly bidding for the company. From the beginning, his plan was that the price tag would be paid through the pensions of Tribune’s 20,000 workers, held in an employee stock ownership plan, or ESOP. The ESOP structure was designed to reduce Tribune’s taxes to nearly zero and it lowered Zell’s own price tag to $315 million. Unfortunately, it also left a $12 billion debt load to pay just as the newspaper industry as a whole is largely cratering on lower ad revenues. The principle — that the company could hoard its declining cash flows to pay down this enormous debt — was flawed. Cash flows declined, and tax savings couldn’t help. A populism-friendly redesign did little to goose revenues.
It isn't dirt, unless you count Wrigley Field, Tribune Tower (Zell them for Condos?) and ancillary stuff. But the Tribune, the Cubs and WGN are Chicago institutions, so this is news to me.

That said, I don't watch WGN-TV much anymore. They've blown Cubs coverage by putting the games all over the dial. The only good thing they've done there is to add Blackhawks games. The radio side? Still ok, I guess. I have to wait and see on John Williams in morning drive.

But the newspaper? Good grief. It is literally unreadable since the redesign. I tried it for a couple of weeks and then canceled my long-standing subscription. And I'm not coming back. Sorry.

Notably, the Cubs are not part of the filing. Get the team sold already. I know, I know, taxes, taxes and more taxes. But get real and get it done.

UPDATE: Here's a link from the LA Times of the memo to Tribune employees.

Gee, could you paint a bleaker picture? And is that a good thing?

When I read this story, captioned "It can't get much worse," I wanted to jump out the window. Luckily I was in the basement.

Seriously, here's what some are saying in institutional investor land:

Properties with purchase offers are not closing; transactions are down; and managers are going hat in hand to their investors for cash to prop up properties they do own.

“There's no light, no tunnel, no liquidity, no equity,” said Jeff Barclay, managing director and head of acquisitions and development at real estate investment firm ING Clarion Partners, New York.

“Some people are being wiped out,” said Claudia Faust, co-founder and managing partner at Hawkeye Partners LP, a real estate private equity firm in Austin, Texas. Hawkeye takes stakes in real estate money managers

Deals are being broken at historically high rates.

Some buyers are reneging on deals struck just a month or two ago. Others have walked out on deals or “shamelessly” renegotiated deals after they have been struck, Mr. Barclay said.

Now, there are deals being done. Let's not forget that. We tend to do that, and yes, I do too. But there is also a lot of retrading going on. But a great example of even the best investors having problems with getting money can be seen here, where Tom Corfman tells us:

Hines Interests L.P. is struggling to finance a $536-million skyscraper proposed for a site along the Chicago River, as the credit crisis delays one of the city's biggest developments and saps potential profits on the 52-story tower.

Houston-based Hines' troubles show the depths of the financial crisis, which is threatening a project that until recent months would have been seen as a safe bet by lenders. Hines is one of the largest real estate firms in the nation, and its office tower would be anchored by two trophy tenants: investment bank William Blair & Co. LLC and law firm Baker & McKenzie LLP.

I think Hines will eventually do this deal. Reputation and all that. And hey, there was a full-pager in yesterday's Tribune for the Spire (heaven knows Sam needs all the revenue he can get).

I am being a little facetious here for a reason. A few years ago real estate was so can't miss that everyone and their mother was trying to get into it. And deals were being done that defied description. Now we are in the completely opposite mode. And that tells me that there is opportunity around the corner. I believe it was Nathan Rothschild who said, "Buy when there is blood in the streets, even if the blood is your own." Well, things are looking pretty bloody, and there plenty of opportunities afoot. The only thing holding some people back right now is tight credit or terms that don't make a deal economically feasible. When the business side works out, we legal guys are ready.

Thursday, December 4, 2008

Thursday Tidbits - December 4, 2008

CoStar reports the ubiquitous Younan Properties is taking the plunge on 180 N. LaSalle, with a closing date of no later than December 17.

There's light at the end of the tunnel? That's what panelists were saying in Irvine yesterday.

If you own a title policy through LandAmerica or are closing a deal with them, don't panic. Fidelity has you covered. If you have a 1031 account with them, then, you may have a problem. That company and the holding company went bankrupt. Lawyers Title and Commonwealth Land Title did not and are being sold to Fidelity and are doing business as usual.

Bailout money and CRE: where's ours?

Doug Cornelius has a great post on the New York Daily News "stealing" the Empire State Building by preparing and recording fraudulent deeds. Apparently they conveyed the building right back the next day, but I agree with Doug (caveat: I am also not licensed in NY) that someone will get in trouble over this one way or another.

Wednesday, December 3, 2008

A tale of two bankruptcies

Bally Home Fitness is belly up again. After a prepackaged 11 last year they filed another one today, with the goal of conserving cash in a sale scenario or a reorganization.

The gym business is utterly cutthroat competition. You have the higher-end places that can charge (a little) more but have fewer members, and you have the others (such as Bally) that rely on large numbers and low fees. In either event the gyms rely heavily on additional services to make more money and in this economy...you get the picture. With those numbers, it is hard to make things work. But Bally's been around a long time.

Kimball Hill Homes is also in Chapter 11 and has been since the spring. Alas, the local builder is calling it quits and winding down its operations after a prospective buyer walked away. The company is emphasizing that this will be an orderly process, with all existing construction being finished. This is made sadder by the death this summer of David Hill, the founder of the company named after his father.

Tuesday, December 2, 2008

Can you say operating covenant?

In an office lease, a landlord often does not care if a tenant actually uses its space so long it pays the rent.

Retail? That is a while different ballgame. Nothing looks worse than a shopping center where the tenants have "gone dark," or closed the store while still paying rent. You have a myriad of issues related to this that go far beyond the scope of a blog. I'm sure there are some articles about this phenomenon out there.

I got a kick out of a Journal story yesterday about this. Some retailers are trying to get out of deals without having to pay hefty termination fees. In the case of Office Depot, they signed 40 new leases but do not intend to open all of the stores.

So why the title of the post? In retail leasing you usually try to get the tenant to agree to continuously operate a store. This is a hard concession to extract from many national retailers, who often want the flexibility of going dark while keeping the lease to assign to another party or to reopen a store when times are better or in another concept.

Big boxes can even be tougher. One thing I did recently when confronted with this situation is to get the national retailer to open a full-service, fully-staffed store for at least one day. This at least mitigates as much as possible the Office Depot situation. And it worked, the eocnomy notwithstanding. I don't know what OD's landlords did that lets them not even open, but in this market, maybe collecting rent is better than nothing.

(H/T Traffic Court.)

Monday, December 1, 2008

Chicago's coolest offices - The Powerhouse Building

Or so says Crain's. Even though I'm not in the story (big deal), it is very cool to see your friends, your clients and your office building in the news.

And I am inclined to agree. Even my little space that I hardly use, while not as dramatic as Structured Development or Wight & Company, has a great big window, exposed brick, and all the modern trappings. Yes, it is the building on this page on the left. And I like it.

Jamie's back in town

The New York Times and Legal Week both report that bankruptcy and restructuring guru Jamie Sprayregen is returning to Kirkland & Ellis, where he was before going to Goldman Sachs for a stint as a managing director.

According to the Times:

“I missed the practice of law,” Mr. Sprayregen, 48, said. “What I’ve learned from Goldman, the financial expertise I’ve gained, will hold me in good stead and will be extremely helpful on the lawyer side of restructuring.”
I don't know Jamie personally, but I was just talking about him with a colleague a week or two ago, and my colleague saw this coming because s/he thought that a lawyer as good as Jamie would want to be in the thick of things, what with bankruptcies going on everywhere these days. Face it -- the guy is as good as it gets and has the billable rate to go with it.

So here it is. Now, to be technical, I don't know whether Jamie's coming to Chicago or whether he'll work out of Kirkland's New York office. But that hardly matters. Score another big one for Kirkland.

Want a weekend roundup?

Can't do better than Deal Junkie, so just go there, okay? The highlights for me were the story on commercial loan delinquencies, and the WSJ piece from last week on construction expected to start up again with an Obama stimulus package emphasizing public works spending.

By the way, I hope you all had a good Thanksgiving.

Two more weeks for GGP, says the Tribune

I look at this story as a little good news in a whole pile of bad for GGP, and a testament to Metz, Nolan & Co. Although I guess you could argue that the holiday caused this, if there weren't legitimate discussions going on I don't think the short term extension on some $900 million in debt would have been granted.

There's a lot more to this than just signing a short term extension. Loan covenants have to be looked at carefully, technical or material defaults examined and plenty of paperwork needs to be prepared by lawyers. But the lenders also have to think: do I really want these assets on my books, not to mention more dead loans? But they also have to ask themselves whether there is a reasonable possibility of repayment, probably through a sale that might be a short sale.

So stay on the lookout, and watch also for midnight oil burning at Sidley.

Saturday, November 29, 2008

Deutsche Bank to Trump: pay up, Donald

DB is not laying down in the face of Donald Trump's force majeure lawsuit. It has filed an action in Manhattan against The Donald, saying since the SPE formed to do the Trump Tower deal has failed to pay the lenders back, Trump personally owes the bank $40 million. (H/T to the HuffPo.)

Apparently, then, the loan had some partial recourse to Trump, who IIRC said he would not do recourse (or perhaps it was full recourse) deals anymore. The $40 MM, at least for him, seems to be a reasonable amount for recourse to me. The other question, which a NY lawyer would have to answer, is whether Trump's lawyer will be successful in having venue moved from Manhattan to Queens, where the force majeure case is pending. And if so, then that could be a good tactical victory for Donald by getting a case filed first. Kinda reminds me of spouses racing to the more favorable venue in a divorce -- not that anyone knows anything about that.

Wednesday, November 26, 2008

Thanksgiving counterpoint: clemency for George Ryan

I know I am going against the grain here, at least those in the Tribune and Sun-Times who think former governor George Ryan should rot in jail for another 5 years.

While I see their points, I respectfully disagree.

Senator Dick Durbin and I agree on virtually nothing. But I'm glad to see he is at least considering sending a letter to President Bush asking for executive clemency.

"Let's look at the price he's paid," Durbin told reporters at the Statehouse. "His family name has been damaged. He is at an advanced moment in his life and been removed from his family. He has lost the economic security, which most people count on at his age. And he's separate from his wife at a time when she is in frail health.

"To say that he's paid a price for his wrongdoing, he certainly has. And the question is whether continued imprisonment is appropriate at this point," Durbin said.

Michael Sneed has a sympathetic column in the Times. Eric Zorn in the Trib and Mark Brown in the Times make good arguments against any leniency. So do members of the prosecutorial team, all former AUSAs. I do not deny that. But there's something else to think about here.

Perhaps I look at this from another perspective, one that Senator Durbin knows far too well. My grandfather died recently, and so did Durbin's daughter. I thank God that I had good, quality time with grandpa before the end came.

I think about Lura Lynn Ryan, the kids and the 17 grandchildren who may, for all I know, not get much time with their grandfather again.

Brown says about the family:

We are told that you are acting out of compassion, not so much for the sake of the former governor as for Ryan's wife, Lura Lynn, with whom you have developed a friendly relationship over the years. Look, I've rarely met anybody around politics who doesn't like Mrs. Ryan. It's understandable to feel sorry for her.

But she and her family benefitted from her husband's wrongdoing, and now they are sharing in the pain that every family must feel when their loved one goes to prison.

So, assuming this is true, we have to punish the poor grandchildren now? I tend to agree with Kanakakee County Democrats, six of whom, according to the Kankakee Daily Journal, came out in favor of clemency at a meeting last night.
“It would be a noble thing for him to do,” said Kankakee 7th Ward Alderman Steve Hunter. Kankakee County Treasurer Mark Frechette agreed.

“I think he ought to do it,” said 92-year-old Elvia Lee Steward of Pembroke Township, a longtime Democratic committeeman. “Considering his age and everything he has done. ... He did a lot of good and was no worse than a lot of the other ones.”

Manteno Mayor Tim Nugent, one of four Democrats vying for appointment to the state Senate, agreed. But, he said, Ryan might have a better chance waiting to appeal until after President-elect Barack Obama of Illinois takes office. In Bush’s first run for the presidency, Ryan backed Bush’s opponent, former U.S. Sen. Phil Gramm.

As for commuting his sentence, Nugent, a longtime police officer and former Kankakee police chief, said: “I’m a law-and-order guy, but he’s 75 years old. What harm is he going to do to anyone?”

Heather Bryan, a committeeman from Bourbonnais, said the same.

“Commute or pardon,” she said. “Commuting would be good because it would maintain the integrity of the charge, but he has suffered enough ... I never loved him politically, but my heart goes out to him and the suffering of Lura Lynn. I love him for what he did in commuting the sentences of the men on death row.”
I know people -- most people -- will disagree with me on this one. And I respect the heck out of that. I am not looking at this as a pundit or a law-and-order guy or even a lawyer. I am looking at this as a grateful grandchild. There's nothing more, in my humble opinion, to be served by keeping the man locked up. And I want his grandchildren to have the same chance that I had -- to spend time with their grandfather.

Now, as I always like to do, the full disclosure department. I do not know Gov. and Mrs Ryan, unless you count nodding heads or waves to one another at the club at which we are both members. His son Homer is an acquaintance for the same reason, but we haven't spoken to each other in some months. My wife and her partners are the pediatricians for a number of Ryan's grandchildren. Some friends of mine know the family well, but we haven't spoken about this at all. I am writing strictly on my own account and not at anyone's request. If we can pardon Marc Rich, then George Ryan, who was admittedly convicted of doing some bad things but who has also done a lot of good things, at least deserves some consideration. I hope he can have quality time with his family and perhaps do some good for the world in the time he has left on this earth.

With that, good and bad times aside, I still have much to give thanks for, and I hope you do too. Best wishes for a happy Thanksgiving.

Fidelity and LandAmerica do a deal after all

But now it's on much better terms for Fidelity. The skinny? LandAm apparently had a toxic exchange subsidiary that invested about $290 million in auction rate securities that may take forever to get rid of. And you need to access that money to faciliate the exchanges. In short? Liquidity crisis.

So the solution? File Chapter 11 and sell the money making parts of the company, Lawyers Title and Commonwealth, to Fidelity. This of course assumes the deal gets past regulatory approvals, and I think it will. So FNF gets the cake without having to eat the poisonous part of the business.

As an agent of these companies, I see this as a good thing as we will have the backing of the 800 pound gorilla in writing policies. I don't know, however, how this might affect (a) day to day operations (I am told not really), and (b) current employees in direct operations at Lawyers and Commonwealth. We are being told the local level relationships will not change.

UPDATE: The full text of the press release can be seen here.

Under the terms of the stock purchase agreement, Chicago Title Insurance Company will acquire Commonwealth for $158.6 million and Fidelity National Title Insurance Company will acquire Lawyers and United for $139.4 million, for a total purchase price of $298.0 million. The transaction anticipates that LFG will file Chapter 11 proceedings and is subject to certain closing conditions and regulatory approvals, including the entry of final approved orders by the Chapter 11 court, Hart Scott Rodino approval and the receipt of Form A approvals from applicable state insurance regulators. Closing is expected to take place as early as late December 2008.

"The acquisition of these established title insurance franchises is an exciting opportunity for FNF," said Chairman William P. Foley, II. "We have always had great respect for the Commonwealth, Lawyers and United commercial and residential operations and all three underwriters will emerge from the LFG bankruptcy proceedings as much stronger, stable and more valuable companies. To the extent that it is legally permissible, we expect to immediately begin meeting with the Commonwealth, Lawyers and United managers, employees, agents and customers throughout the country to ensure a smooth transition after closing, as we welcome these underwriters and their employees, agents and customers into the FNF title insurance family."
The market really likes this deal so far, as FNF shares are up over 20% as type. What's there not to like?

Tuesday, November 25, 2008

GGP - we're not dead yet!

[Cue Spamalot music.]

No news as of now on refinancing or a loan extension (Friday deadline's looming) or a BK filing for GGP. What we do know is this:

Alby Gallun reports that Fidelity Investments and affiliates own 13.% of the company, which means mutual funds and investors are gonna take a huge hit. The expectation on the street is an extension of some sort that will just delay the inevitable given the amount of loans coming due in 2009.

But, but, but...today we get news that Bill Ackman's Pershing Square Capital has bought 7.5% of the company on the cheap, paying prices ranging from $0.35-$0.51 a share. (H/T Traffic Court.) GGP is trading at $1.90 as I type, or up 90%.

Hmmm. What's the real scoop here? Are there other investors lurking about too that haven't gotten to the reporting threshold? It could be short-term gain but I really doubt it. Someone's seeing value here. Could the company make it? I sure hope so.

Ooh, ooh! A proxy fight at Grubb & Ellis!

I guess Tony Thompson wants back in at Grubb & Ellis (the name of the consolidated company after the Triple Net Properties deal -- as you know Tony started that company):

Thompson, who has criticized Grubb & Ellis management for some time after leaving the company early this year, has mailed a letter to Grubb & Ellis stockholders that says, “We have watched in dismay over the past nine months as Grubb & Ellis has, in our view, lost its way.”
Thompson is just not happy that G&E has lost 82% of its value since he left. Join the club, bucko. The market's tough out there. Grubb responds by saying that Thompson may just want his company bought out or absorbed, also noting:
Thompson's suggestions offer “nothing that has not already been implemented or considered” by the board and “completely ignores the realities of the current economic environment and real estate market,” the company said in a letter to shareholders.
I do not have a dog or current client in this fight, although I did represent NNN in the past on some small matters. I guess if I had to choose sides I would go with present management. Nothing against Thompson, but he had his run and can go run his own company now. If someone knows something else or can shed additional light on this I'd like to know more.

Monday, November 24, 2008

So much for that merger

Fidelity decided to terminate its acquisition of LandAmerica, as was its right at the end of the due diligence period.

This came to me in an email from LandAm today:

Why did Fidelity decide to terminate the merger agreement? We were informed that the principal reason for their refusal to go forward was the pessimism over the current and foreseeable real estate economy and not because of any negative finds concerning our company.

What is the financial viability of the LandAmerica underwriters? The LandAmerica underwriters, Lawyers Title and Commonwealth, have over $300 million in combined statutory surplus. And we have some of the industry’s most stringent requirements for reserves in place to protect our policyholders. The LandAmerica underwriters’ claims reserves are backed by over $1.1 billion in cash and investments.
Take that as you wish. I know they have cut back to or even beyond the bone in staffing to get through the crunch. It'll be interesting to see whether the board has any head rolling to do as well.

Thursday, November 20, 2008

Thank goodness for dumb doctor deals

Actually, that's a misnomer here. "Dumb doctor deals" are real estate transactions that make no sense but for the fact that there are doctors with plenty of money backing them.

Reading this NREI story was a welcome relief from all the gloom and doom in the news lately. The sector, while perhaps not recession-proof, is still alive:

According to the latest data from Real Capital Analytics, sales of medical office properties totaled $3.3 billion in the first nine months of 2008, a 13% drop compared with the same period a year earlier. But that dip pales in comparison to the 62% dive in property sales for the entire office market in the third quarter.
Whew! Someone's doing something! And banks are dying to lend money to doctors right now, as they think that is a good exposure for their money. Let's face it -- we all get sick. We are, however, noticing anecdotally that the ER is in more use lately. Why? People are waiting until they are really sick to see a doctor because of a lack of money or health insurance.

And on the personal front, I should add that the newest medical office building in Bourbonnais, Illinois is opening soon, probably in early to mid-January. Yes, I was the lawyer on the deal; if I hadn't been, I probably would have been kicked out of the house. Wait until they get the final bill!

Thursday Tidbits - 11/20/08 Edition

GGP has hired Sidley Austin as BK counsel. Now, this does not mean they will file. But, they've got over a billion in debt coming due by month's end, and the company's worth about $100 MM right now (not that there's any correlation; I just like to say that, and hey, lenders are worried too). I'm actually surprised this hadn't come out sooner.

Why else this is a problem? Because spreads are insane, apparently driven by two deals possibly defaulting early in the loan cycle. Take a look at the underwriting and you'll see why. Maybe this is the sell signal we need to get people buying something, albeit at dirt cheap rates. But lending has tightened even though bankers claim they are lending.

As for me? I think I will apply for bank status and then fly to DC in a private jet and ask for TARP money. What the heck? And what word should I use for this? Irony? Hubris? Stupid? All of the above?

UPDATE: the contraction of lending activity is 53%. I just could not find the link earlier.

Tuesday, November 18, 2008

Trmup's Lawsuit: Developer See, Developer Do

Tom Corfman's Crain's piece today predicts:

Donald Trump’s lawsuit against the menagerie of construction lenders for his riverfront tower is likely to be followed by more pre-emptive strikes by other developers.

Amid the prolonged credit crisis, such lawsuits could become common.

We've heard all the stories, so I won't bore you with lenders turning the screws on their borrowers. (Hey, the borrowers did it to them a few years ago, let's not forget.)

There were two opinions given about the lawsuit:

“We’re in an economic crisis, yes, but does that constitute force majeure?” said real estate attorney James Fox, a partner in the Chicago office of law firm Quarles & Brady LLP. “Only crazies would do that.”

The force majeure claim is “a stretch in this case, but it gave him a toehold,” said Mr. [Marv] Romanek, managing director with Northbrook-based Romanek Properties Ltd.

I wrote about this here on the 8th. The gut reaction was similar to Mr. Fox: economic problems aren't events of force majeure. But I don't know what the language is in the loan agreement. If drafted (im)properly, you might -- just might -- have a case. Look at the clauses here, for example. Others that I have looked at are too tight to beat Trump here in my opinion.

Moreover, assuming the allegations are true, would you want to have to defend banks in this climate that "no longer have the cash to fund the completion of the project" and that apparently refused to let Trump take steps to mitigate such as lowering prices? Again, I'm no Trump apologist and I think this is a negotiation tactic. While I still think he's got an uphill (mountainous, perhaps) battle to win this one, I'm no longer 100% convinced that the theory is utterly crazy or sanctionable.

The moral of the story? This is just another example of why, as a lawyer, you have to sweat the details, including the boilerplate. My favorite example of boilerplate coming back to get a party is here. (Free sub. required.)

Never mind - just liquidate

Are changes in the bankruptcy laws causing this? Instead of reorganizing, companies these days are just liquidating. Let's see...Linens and Things, Value City, Bennigan's...now apparently Steve & Barry's (H/T Traffic Court) only three months after a private equity rescue, and some think Circuit City's conversion to a Chapter 7 is only a matter of time. Or is it that PE players are just scared of the economy right now and figure they better cut their losses? Maybe not here, since the hedge fund that bought the company is going to lose its investment.

So, the best answer may be lenders. In the case of Steve & Barry's, "Cerberus Capital Management LP, whose Ableco lending unit provided a loan to finance the deal, expects to be paid back in full, according to people familiar with the deal." Want to bet a nickel the lender said, no more money -- we want ours and unless you PE guys put more skin in the game, close this puppy down.

Now the question is whether we all have the intestinal fortitude to see this happen in Detroit, or whether we will hold on to what many consider to be a broken business model.

Friday, November 14, 2008

OT: Tackling teacher tenure

The hard-charging chancellor of the Washington, DC schools, Michelle Rhee (all of 38!), has proposed what teachers unions must believe is unthinkable. But the plan is nothing short of sheer genius.

What is it?

Ms. Rhee has proposed spectacular raises of as much as $40,000, financed by private foundations, for teachers willing to give up tenure.
I considered being a teacher, but the salary structure just didn't work for me. It used to be that some or many of the best and brightest went into the profession. These days, fewer do, to the point that it is almost laughable.

This idea will not end tenure, meant originally to provide professors with academic freedom. But it is a great start.
Ms. Rhee has not proposed abolishing tenure outright. Under her proposal, each teacher would choose between two compensation plans, one called green and the other red. Pay for teachers in the green plan would rise spectacularly, nearly doubling by 2010. But they would need to give up tenure for a year, after which they would need a principal’s recommendation or face dismissal.

Teachers who choose the red plan would also get big pay increases but would lose seniority rights that allow them to bump more-junior teachers if their school closes or undergoes an overhaul. If they were not hired by another school, their only options would be early retirement, a buyout or eventual dismissal.

In an interview, Ms. Rhee said she considered tenure outmoded.

“Tenure is the holy grail of teacher unions,” she said, “but has no educational value for kids; it only benefits adults. If we can put veteran teachers who have tenure in a position where they don’t have it, that would help us to radically increase our teacher quality. And maybe other districts would try it, too.”

Hear, hear!

Most good teachers won't care. One teacher who went into the profession thanks to Teach for America (a great program, BTW -- two of my friends were in the inaugural class) said “Isn’t it funny? I don’t even know if I have tenure. To me, tenure is not a motivator; I motivate myself. It just doesn’t mean a lot to me.”

Good teachers that do care just don't get it. Another award winning-teacher said she was afraid of being critical of the district: “Don’t ask me to give up tenure, not even for a moment.” But dig -- if you are that good a teacher and get fired for criticizing your decrepit schools (i.e., telling the truth), you'll find another job in about five seconds, and probably one that pays really well, too.

Too little, too late

In today's Tribune:

As Macy's heads into its third Christmas in Chicago facing a brutal shopping environment, it is starting to bring back a small part of the old Marshall Field's.
Nice try. But I haven't shopped at Macy's since the name change and I never will. Sorry. Sav-On learned when it tried to change its name to Osco on the west coast back in the 80s IIRC; even though I was an Osco shopper in Chicago, that change failed miserably with the average shopper in LA. Macy's should have learned the same lesson, but it didn't.

I might change my mind for the bankruptcy/store closing sale if that happens, but otherwise, I have moved my loyalties elsewhere. Permanently.

H/T Traffic Court.

Wednesday, November 12, 2008

CEO of Prologis resigns

Jeffery Schwartz is calling it quits at Prologis after just under four years on the job.

If you want the full scoop and stories about this event and the company, let me recommend Stripnomics to you. Richard Woon's been covering this company in detail and probably has forgotten more about it than I know.

UPDATE: on top of everything else, such as dividend cutting, overhead slashing, etc., Prologis is halting all new development.

Can you say one mall?

Yep. GGP's worth the equity in one mall, and not a big one at that, as I write. Never thought I'd see the day with a company I've always respected.

Traffic Court has a good summary of the goings-on, including the dropping from the S&P 500 and a vague statement from Westfield that it might be interested in some of the properties. Nothing against Westfield -- they have some good people there -- but Westfield Shoppingtown Water Tower Place is a mouthful!

Institutional investors - overinvested in CRE?

This is something I've read about before, but it bears repeating.

The "denominator effect" looms as the next force that could pressure the slumping real-estate market.

Falling stock prices are leaving institutional investors overexposed to real estate, which could trigger further declines in property values as some of the market's most-active players move to the sidelines to recalibrate their portfolios.

Big pension funds, college endowments and insurance companies typically allocate most of their investment dollars to stocks and bonds and sometimes a smaller amount -- about 6% to 10% for pension funds and as much as 30% for other institutions -- to real estate. In the past decade, as real-estate values rose rapidly, many institutional investors expanded their real-estate holdings and in many cases became fully invested in the sector or close to it, bumping up against their preferred allocations.

Now that stock values are beaten down, and because real estate is typically appraised only once a year and not daily like stocks, the relative size of the real-estate portfolio has grown and in many cases is now higher than the funds' guidelines. This is known as the denominator effect.

So, because your other assets have tanked, you have to dump dirt to retain the allocation ratios. Of course, doing so at crazy low prices...well, you get the picture. It'll be interesting to see how the big guys deal with this issue.

Tuesday, November 11, 2008

You know things are bad when

you read this. I know the Blixseth divorce started cordial, went sour, and now this? Whew.

BILLINGS, Mont. (AP) — The Yellowstone Club, an exclusive mountain retreat for the ultra-rich, said it filed for bankruptcy Monday after failing to secure new financing — underscoring that even the elite can't escape the country's current economic troubles.

Monday, November 10, 2008

And now, the dreaded going concern statement for GGP

Yup. GGP has released its 10-Q with the following statement:

In the event that we are unable to extend or refinance our debt or obtain additional capital on a timely basis and on acceptable terms, we will be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors. Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern.
What does that mean? Bankruptcy if some big loans are not extended or refinanced. And these deals are requiring big bucks, including lower LTVs and higher interest rates. This double whammy may mean that even if the loan agreement is on the table the deal may not be able to be done. The CC bankruptcy didn't help. And some say it is time that GGP go away.

(AIG had a going concern statement in its 10-Q, by the way. But it gets a bailout.)

And the bailout is supposed to do what?

Loosen credit? Utterly no evidence of that, or of interest rates going down either. This post from ULI's Ground Floor blog shows no signs of anything letting up.

Hopefully this wasn't a complete waste of tax dollars to just line some pockets of the right people at Main Street's expense. Although I said it had to be done, I think you have to question how, why and when.

Even if you want to do a deal, you may not be able to afford it. Which reminds me -- take a look at the spreads.

Circuit City turns to Chapter 11

First they announce store closings. Now bankruptcy, albeit Chapter 11 for the time being. Is that the whole story?

The interrelationship is more than meets the eye from the wire stories. There is definitely a real estate component to this filing.

When they announced the store closings, the question you had to ask was: how? Do the leases for the closing stores have termination rights? Landlords aren't just going to walk away smiling. A retailer with the clout of CC usually negotiates a "go dark" provision that allows the store to close but you still have to pay rent.

But under Chapter 11, the retailer can reject the leases it does not want and walk away. See this from the press release:

Under the protection of Chapter 11, the company plans to build on these recent restructuring initiatives. Through the additional flexibility that the bankruptcy process provides the company to restructure its operations, the company will continue its real estate rationalization by taking immediate steps to reject the leases at its previously closed locations. Further, as part of its restructuring efforts, the company will continue to assess the productivity of all assets, review additional cost-cutting initiatives and explore strategic alternatives to maximize the value of the business.
I also noted that company believes it will have cash for unsecured creditors, making the dirt angle even more credible. Now the question is whether this company, which has been battered by Best Buy, will make it even with this restructuring. Let's hope so.

UPDATE: Deal Junkie makes an excellent point about the inflexibility of the CMBS market in this post.

Saturday, November 8, 2008

Legal term of the day: force majeure

Well, The Donald apparently can't get another loan extension for Trump Tower Chicago, at least not without taking a haircut, and we all know how Trump likes his hair. So he's suing his lenders and demanding more time, claiming that the global financial crisis is an event of force majeure that excuses his timely performance.

I obviously haven't seen Trump's loan, so I don't know the exact wording. But I deal with these clauses all the time. Literally meaning "greater force", a force majeure clause excuses performance under contracts because of acts of God, strikes, wars, riots, natural disasters, etc. I don't have my form book in front of me, but here are some examples online.

So the global financial crisis is an event of force majeure? That's an interesting and novel theory. Does it win? I can't say since I haven't read the contract and I'm not the judge, although my gut reaction is that this is a play for time to negotiate a settlement. Part of me really likes it.

If it does succeed, oodles and gobs of borrowers are going to be going to court. The thing is that if the story is correct, Trump can get an extension but at a big price he doesn't want to pay. His lawsuit also says the lenders have been unfair by not letting him lower prices on unsold units. Lenders can require minimum prices in the loan agreement on sakes, leases, etc. -- you see this frequently. But if Trump successfully makes the argument that the lenders were unfair in refusing to recognize market conditions and let him lower prices, effectively precluding his ability to cut his losses (especially if the lenders were not even covering their funding obligations), that might look great in front of a judge or jury.

I also don't know how a NY court is going to rule; presumably that was the choice of law as it often is on big construction loans. I am not admitted in NY, but the clause will probably be construed strictly. That's just one reason why NY is often the choice for lenders on these deals. The case was filed in Queens, which IIRC was Fred Trump's base of operations.

Friday, November 7, 2008

Fidelity National to acquire LandAmerica

As an agent for LandAmerica, thanks to my ownership interest in River West National Title, I was wondering about the company's future. The stock was down about 90% this year and 3Q financials were delayed. I figured the company was looking for a buyer (no easy feat in this market) or a Chapter 11.

We got the former. Subject to the usual contingencies -- and presumably antitrust approval -- Fidelity National's buying the company. Here's the press release. You'll know Fidelity better in Chicago through brands such as Chicago Title and Ticor, just as LandAmerica is better known through Lawyers Title and Commonwealth.

I don't know what impact this will have on our operations, but I hope of course it will be a good one. We'll just have to see how this all plays out. So many people in the industry have lost their jobs lately that you need a scorecard to figure out who is left.

Thursday, November 6, 2008

One winner in the game - Wal-Mart

Seems like you can always count on Wal-Mart to do well when things are bad. Times are tough, you buy the least expensive you can. And Wal-Mart has those always low prices....and yes, a year ago people were talking about the end of the end of the Wal-Mart era? Show me the money, baby.

Nonetheless, they are still being cautious about future expansion, which is just another reason why WMT stock is up almost 15% YTD.

Oh what the heck

Let's throw a little more money at a problem: namely, Block 37. Now we're looking at another $12 million to help pay for a Loews hotel there. The money will also apparently help pay for CTA cost overruns, which is apparently going to cost some $320 million.

But let me say this: my gut reaction is that this is a good use of TIF money. Block 37, face it, is a showcase. We took this long to figure it out, and kudos to Freed for coming up with a good use. I like the idea of a hotel there.

Wednesday, November 5, 2008

And just to brighten your day a little more

We have another prediction in that the next tsunami in the market will be commercial real estate. This one comes from Thomas Barrack, the founder of Colony Capital via the WSJ's Deal Blog. (H/T Traffic Court.)

Believe it or not, if Mr. Barrack is right I think this would be as bad or worse than the residential crisis. Why? The blog post says most of it well. If the loans mature and there are no buyers and no viable refinancing options, what next: RTC II? The Obama administration better be ready for the second half of its term when this all starts hitting the fan if not sooner.

The best case I see against this is fundamentals. But, as we've seen lately, those can change on a dime. Lawyers, start dusting off some old books just in case he is right. The other savior I see is opportunistic investing. There's money out there that is waiting, patiently, for a bottom.

I'm posting way too much for my day off, and a beautiful day at that. Latersville.

GGP, Kimco tank on lower earnings expectations

When your earnings aren't going to make the target, you know it's gonna happen. Could this come at a worse time for GGP?

They claim to be making inroads on financing. I missed the call, unfortunately, but maybe I will listen to it later. Adam's a smart guy, so if anyone can bail this one out he can, presumably with Bucksbaum in the background.

But GGP trading at $2.53 as I type and with a market cap of $677 million? Maybe Roeder was right. Problem is in this market selling isn't easy and lenders may be willing to negotiate just to not have distressed assets on the books.

More on an Obama presidency and CRE

Eddie Baeb and the ubiquitous Bruce Kaplan have it right on: but for the credit crunch, we'd be in a sell sell sell mode.

Enough said.

Waterview Tower: the naysayers were right for now

I'll toot my horn when I am right and admit when I am not. (I should make sure I am a lawyer, huh?) And this time the naysayers on Waterview Tower were right. First it was the trade credit insurance, then the liens, and now this. Alby Gallun moved a story this morning that Waterview Tower's construction loan with the Export-Import Bank of China is on hold. Anyone who said timing isn't important didn't develop real estate.

Yes, this means you have 26 stories of a building shell sitting across from my old office just sitting there. And this also means B of A could foreclose on its A&D loan. The liens themselves are usually defaults under a loan.

The one bright side -- if you can call it that -- is the number of condo and condotel units sold and a stated commitment from Shangri-La to the property. But even that cannot last forever.

So now we have one of those distressed situations that we've been talking about. What happens? Alby mentions the following:


Under one scenario, the developer would finish the hotel and sell the rights to build the condos later, when the condo market recovers. But running a luxury hotel while construction is under way on the building’s upper floors would be extremely disruptive and a potential deal-killer. Another option: Convert the current structure, a 26-story concrete shell, into apartments.
These are tough. First you probably have to get the city to sign off on it since the property is in a planned unit development. In addition, I'm not sure apartments are a great use there. Maybe build the Shangri-La alone and be done with it? Could you get some credit for not using all of your FAR? And the story correctly says that finishing the hotel now and topping off later would be very disruptive, and for a long time. On the other hand, the city is not going to look kindly on a shell sitting there for years at a time and will probably approve something reasonable. (At least the Spire is all below ground.)

Other possibilities Ably also mentions are ongoing are (1) a possible JV with a money partner, but I assume that partner will want a big piece of the action and perhaps control; and (2) selling off the project in chunks (hotel, parking, condo). I like option (2) the best; it is just a matter of a vertical subdivision and doable. (If not done already, I imagine the property might be vertically subdivided anyway at some point, if for no other reason than because of the condos and the hotel, etc.) The biggest issue will be dealing with the liens and such, although I suppose bankruptcy is also an option. And there are probably cash buyers that would look at this project and see a play in it, but only for the right price -- a price the developer may not like.

Tuesday, November 4, 2008

And, just to top things off

Institutional investors are backing off private equity investments:

Large institutional investors that provided much of the capital that put some of America's best-known companies into private hands are starting to cool on the investment strategy, suggesting that the lifeline for private equity is eroding.
PE can bring big returns, but there's a concern about liquidity. I can understand that. But this can also mean, for dirt folks, less capital for investing and lower prices.

But what it can also mean is a HUGE opportunity for the real estate investors who stay the course. If you have the cash on hand or available and prices go down because there is less competition for assets (case in point here - 525 W. Van Buren selling for less than its purchase price per Tom Corfman), then you can truly buy low and wait for the cycle to sell high.

Simon: We're Not Buying GGP

And why should it? Yeah, that's the big rumor. But, just like law firms these days, there's little need to take the whole kit and kaboodle. If GGP cannot get out of its current hole, then Simon can make a much better play: cherry-pick the best assets one way or another. And, at least as far as I know, there is no other player to step in.

Or is there? I have one other thought in mind, one I am going to put into an envelope, and I promise to tell you whether I am right or wrong about it.

Oh, and in the big shock department: GGP's been hit with a class action over the whole loan business. Yes, the plaintiff is represented by Bill Lerach's old firm in San Diego.

Preparing for an Obama presidency in CRE

As exemplified by this Retail Traffic piece last week comparing GOP and Democratic policies, dirt folks need to start preparing for an Obama presidency, assuming we don't end up in a Dewey Defeats Truman scenario.

What will be good? Well, the Democrats will likely spend a lot of money on various programs in an attempt to stimulate the economy. This could lead to more projects and spending in the middle class, but it could also lead to higher prices and construction and labor costs.

On the other hand, you have some real negatives, intentional or not. Capital gains taxes will increase, meaning more money to Uncle Sam when you sell unless you 1031 your proceeds. And yes, I am prepared to start acting as a qualified intermediary because I see an increase in these deals coming. Retailers are worried that soaking high income people will be problematic because they will have less disposable income and that the income will not be replaced by middle class tax cuts, which may not come anyway.

But, as I have said before, the big one for me (and my law practice) and for developers that will really have a chilling effect on my income and my clients is the carried interest rule. Obama is in favor of changing the rule because hedgies have made so much money. In real estate, however, the chilling effect of charging developers ordinary income for their promote could be scary. I hope smart tax lawyers are looking for new ideas to keep deals going.

If anyone has any thoughts on the potential impacts of Obama, Pelosi and Reid, please let me know. We're already in a down market and I fear -- perhaps incorrectly -- a further chilling effect.

My clients can find other things to do to invest and make money. Me? I may have to retool my practice. Trust and estates, anyone? Traffic tickets? Slip and fall? Or, as we used to say at the Daley Center, TCC (two cars crashing)?

Monday, November 3, 2008

Bad news (for now) on the retail front

Nationally: as expected, Circuit City decided to close 155 stores by the holidays, including 13 in Chicagoland. It's been the talk for a long time now, as they are getting clobbered by Best Buy. FWIW, my local Best Buy does not look too busy either. But I really like the store. I dont; have a Circuit City near me so I do not keep on their doings much.

Locally: Crain's reports that two of the three anchor tenant's at the old Carson Pirie Scott store, Fox & Obel and Billabong, are pulling out of the deal. I don't have any details or inside information. I'm guessing there were letters of intent and negotiations terminated. Short term, this is not great news, as retailers are retrenching and trying to open in only the hottest or most proven areas. As a long term play this may not be so bad. State Street has had some notable defections and I wonder if a different tenant mix would be good overall.

Chicago politics and dirt: ex-alderman and Chicago political bigshot Ed Vrdolyak is apparently planning to plead guilty to a kickback scheme involving the former Scholl College of Podiatric Medicine building in the Gold Coast. No pol is safe with Patrick Fitzgerald in town, although an excellent John Kass wonders about his tenure under an Obama administration.

Saturday, November 1, 2008

Roeder: GGP "almost literally worth nothing"

David Roeder of the Sun-Times has a scathing story today chronicling GGP's decline thanks to debt and too much optimism. I didn't see anything, however, about the hanky-panky loans previously disclosed by the company that led to the downfall of Bernie Freibaum, Robert Michaels and John Bucksbaum.

All I can say is that I wish Adam Metz and company good luck. People who come from the old JMB dispora pretty much all have a lot of brainpower, and it looks like you'll need it here.

Friday, October 31, 2008

RIP Studs Terkel

I was sad to read today that Studs Terkel "checked out" at the ripe old age of 96. He was a brilliant, amazingly inquisitive writer and an engaging personality.

I was fortunate to have about half an hour alone with this legend in the 1980s. I didn't know at the time how lucky I was. He was in town narrating Lincoln Portrait and I was a member of the Knox-Galesburg Symphony at the time. We (and maybe one other person, as I recall) were the only people in the green room while the rest of the band was playing. I do recall being a little awed, and speaking about history and music -- jazz in particular. He was as kind and nice as one could be to a young kid like me.

His oral histories were pioneering and nothing short of genius. He will be missed.

Halloween Spooktacular Edition

Boy, there's enough bad news this week that I am catching up on to make you want to crawl in a hole. But I won't. It is a spectacular day and as soon as I can get done with work and before trick-or-treating begins, I am going out for a nice walk or maybe even nine holes.

Michael Mandel, citing a Morningstar report, tells us there's a 20% chance that CB Richard Ellis could go bankrupt. For dirt folks, that's would be as impossible as, say, Lehman going under. Oops....

I did not go to ULI, but David Bodamer did, and the mood there was pessimistic. Doug Cornelius has a link to the trends report here. On a side note, I got an email from ICSC yesterday telling me that hotels are cutting rates for next year's convention in Las Vegas. You know what that means -- fewer attendees.

No wonder the store closing signs are out at Value City -- they filed a BK the other day and plan to liquidate. Don't laugh, but maybe I should go check out the furniture outlets they have for a piece or two.

At the risk of being political, do you think if Tony Rezko was associated with John McCain the media would not be talking about it? (Yes, there was yet another indictment in Illinois yesterday.) And regardless of you you vote for, you have to almost laugh at the media bias this cycle, in particular the negative McCain stories. The independent report from Pew seems to say that Fox News really might be somewhat fair and balanced (I'm shocked at this, actually). MSNBC? Not so much.

Here's a Bloomberg story on Trump Tower Chicago and the Spire. Donald's working hard to extend his loans.

Speaking of loans, good move, imo, by Golub in refinancing the office portion of Block 37 a year early. Why take chances?

Enough. Enjoy your weekend!

Thursday, October 30, 2008

Boom time?

That is what the LA Times says it is for lawyers. And it is for some - mortgage fraud, bankruptcy and all that. And perhaps the bailout will create opportunities that lawyers will have to helo their clients wade through.

Of course, this is being written as two major California law firms (Thelen and Heller) have dissolved in the last few weeks. Don't tell all the laid off lawyers we're in a boom time. They and support staff are in many cases having a tough go of it.

Larry Bodine, citing a Hildebrand International report, agrees. The word is that 2009 will be a tough year for lawyers, not a boom time. More layoffs are expected, profits will be flat or down. And I'll bet a nickel you will see several more major firms dissolve.

There''s always opportnuity out there for a good lawyer. And sometimes a downturn in one sector of the business means an uptick in others. But I just don't see this as a boom time.

Monday, October 27, 2008

Bozoids betting against Buffett while Laffer laughs about "solutions" to the economy

Well, today we have Arthur Laffer telling us that the present administration is, in a nutshell, Herbert Hoover all over again. And is Obama FDR, and, if he is, is that necessarily a good thing?

You'd think the one constant in this would be the Oracle of Omaha, Warren Buffett. He's investing in certain equities as he thinks they are sound. And the Heard on the Street column at the WSJ is taking him to task a little for not timing things right.

And others are jumping on that bandwagon.

Hey, Buffett's not perfect. He'll be the first to tell you. But he has a darn good track record. And if you read up on him and Charlie Munger, you'll realize that it is all about the long term. If you believe in the BRK model, you are looking at gains over years and decades, not weeks and months. I'm no investment maven by any means, but I've always thought that it is OK to buy above the bottom and sell below the top as long as the investment is sounds. No one times the market perfectly. If it were only so easy.

So, go ahead, bet against Warren. He's probably smiling at these stories as I type.

(Full disclosure department - we own BRK stock.)

GGP: Now John Bucksbaum and Robert Michaels "step down"

That's news. Here is the press release, and here is a WSJ story. Bucksbaum remains chairman but is no longer CEO, and Michaels is out as president but staying as COO.

The Journal is calling it an "ousting." Their replacements are Adam Metz (the lead independent director, so that makes sense) and Thomas Nolan, respectively. I don't know Nolan but I do know a little about Adam, as I used to do legal work for some of the companies at which he worked.

These guys have some big tasks in front of them. Job #1 has to be to get some loan extensions on properties, especially Fashion Show and Shoppes at the Palazzo, which are now on the market but have a billion in debt coming due in a month. That should be an interesting negotiation to say the least.

The Bucksbaums have been a cornerstone of Chicago and I hope that continues. Their billions in the company have shrunk to millions, and GGP's stock is down 90%. It will be interesting to see whether GGP stays independent, sells out to someone (Simon?) or something else happens.

Prices flat as a pancake, and heading to 1990s Japan?

Moody's is reporting that CRE sales prices were essentially flat in August, with transaction levels at their lowest in four years. Why?

Neal Elkin, president of REAL, said that the flattening of prices in August may seem surprising, but that is because they are being looked at through the prism of the tremendous market turmoil of September and October. Transaction levels are still being hindered by a large bid-ask spread between buyers and sellers, he said, but many owners of commercial properties who purchased their properties with high leverage may have to sell, or refinance, although he said “that will be a slow process.”

Although Elkin said REAL is not in the prediction business, he said he would be surprised if prices did not show some decline in September.
So would most of us.

And on another front, we have the Fed trying to intervene in the markets with credit again. The government is already doing its part with its "Who cares about loans, let's give banks money to buy each other out" plan (Main Street ought to love this), and now the word is there will be another 50 bp rate cut. We're heading to zero, gang. That didn't work in Japan. Does that mean we are in for a decade of turmoil? No. But the damage is done (a 2.2% decline in the last quarter?) and we have to pay the price for a while. And I'll be the first to tell you: I knew things would eventually have to slow down but not like this. Yes, I was wrong. That doesn't mean you can't get a deal done; you can. But be prepared to work it.

Finally, how long will things be slow? Some say twelve quarters.

Tuesday, October 21, 2008

Stimulating the economy -- through bank mergers?

Maybe I'm just a dumb dirt lawyer. But I really, really don't get this.

A big criticism I had of the government "stimulus package" was that banks would have no obligation whatsoever to actually go out and lend money again. So what are banks planning to do with their government investments? If you said "lend money," guess again. No, they plan to use the taxpayer-financed infusion as cheap money to buy up banks that are weaker. As the story says:

If the banks use the government funds to pay for acquisitions, it could prove controversial. Taxpayers essentially would be footing the bill as strong banks gobble up their weaker peers. Such acquisitions probably would provide less of a boost to the economy than would new bank lending.
Controversial? That's putting it mildly. Scandalous is more like it. And the impact on the dirt market? Well, what confidence there was about loosening credit may fade. Somebody who understands economics please tell me: how will this help Main Street? Call me what you want, but when you do so keep this formula in mind. Government = more costly + less efficient.

I guess one thing is good -- full employment for the M&A lawyers.

Add Jenner to the list -- again

The NLJ reports that Jenner is once again asking (read: telling) about 10 partners to leave the firm. Why? Staffing changes to meet expertise. I hope no one I know is affected. Once again, here's that reminder that, for better or worse, partnership isn't what it once was.

Nothing on associate layoffs though. Indeed, there was apparently an all-hands meeting the other week where employees were told everything is fine. ATL and the WSJ both have their own stories on this event.

I guess you call call it the annual event, sort of like GE performance reviews. But GE's a corporation, of course. And much as I deplore the loss of the traditional partnership model, let's look at the flip side: is it the fault of the associates that certain partners are not making targets? Looking at it that way, this makes more sense than dumping younger potential partners. Jenner's press release makes it clear that the bottom line's more important than ever.

 
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