Thursday, January 31, 2008

This is called a teaser...

As I alluded to in a comment the other day, I'll have an announcement to make, probably in a few weeks, about a new business venture in the industry in which I am investing. Stay tuned for details! I hope you'll be able to avail yourself of the services and the value this new company a friend of mine is starting.

All about the clients...

It was great to see another nice write-up in Crain's about my client -- and landlord -- Structured Development LLC, and their money partner (which I used to represent before going out on my own), Commonfund. They teamed up to buy the old Bowman Dairy property at 1401 North Kingsbury and are planning to eventually convert it into a mixed-use project like the one nearing completion on Halsted Street and Blackhawk anchored by the British School of Chicago and REI.

Wednesday, January 30, 2008

Chicago buildings on the market...

Here's a short list in Crain's. The story features Congress Center in the West Loop area, a building with which I have more than a passing familiarity. Triple Net Properties (now known as Grubb & Ellis after they bought G&E last year and took the name) bought the building in a highly-leveraged tenant-in-common (TIC) deal. It seemed like a good move because of the leases in place. But now vacancies have risen and more buildings are on tap in that sub-market, so experts think the profit may be only 10% above the purchase price of ~five years ago. Now, the deal is levered so that makes the cash-on-cash return a little better, but this might be a bloop single, not a home run. Stuff happens. At least the TIC investors are not losing their investment, which is a topic I will have to discuss one of these days.

Tuesday, January 29, 2008

More on foreign investing

A survey of the Association of Foreign Investors in Real Estate indicates that ~200 of their members own $230 billion in US real estate, or roughly one-third of their holdings.

Of course, that survey does not cover all the members, nor presumably are all foreign investors members of AFIRE. But it does reinforce the feeling that our dirt is cheap on a relative basis. I also found interesting that there is a lot of interest in China, but that the US and other markets still hold major sway. Why? It's what we know.

Monday, January 28, 2008


I'm gonna rely on you to read Traffic Court again to catch up on some not-so-great news on CMBS, including a huge spreads over Treasuries and a 48% rise in yield over swaps. Thoughts appear to be that even the highest-rated tranches may be affected and that more defaults are on the horizon. I don't know how upset I will be with a possible 4% default rate in real terms. We've been at historic lows, and 4% is not awful. But defaults can just create more panic in the market and that troubles me more. And, honestly, Fed intervention may or may not matter. It'll be interesting to see how this is going to be playing out.

Sunday, January 27, 2008

Glorious Republic of Kazakhstan to have new emporium of semi-disposable Swedish furnishings and meatballs (what are meatballs anyway?)

Sorry...could not resist this one. I have a feeling Borat will not be at the grand opening. Actually, and seriously, IKEA is going to spend $500 million on malls in Almaty and Astana, the capital and the major commercial center of the country. This means Kazakhstan will have as many IKEAs as Illinois.

Friday, January 25, 2008

Interesting trend - don't buy the dirt, buy the developer

Private Equity Real Estate has a good article (free sub. required) about a trend among private equity players: instead of buying up property or finished buildings or even developments, they are buying all or chunks of development or doing equity participation deals with them.

I've seen the latter trend forever, of course. And it is a wise move on their part to do so. Take the undercapitalized developer, bring in a money source with cash to place, give the money partner a preferred return and the developer a nice promote and you have a total win-win situation.

Buying the developer itself is an interesting twist. The upside is guaranteed stability. The downside? Are you expected to work exclusively on the owner's deals? What happens to the promotes -- are they there in the form of high bonuses or gone? The flexibility may not be there. But I still find the idea intriguing.

Tuesday, January 22, 2008

The latest pricing news from the CRE sectors...

...can be found at Traffic Court. In short, a little weakness in retail (-0.6%), a little more in office and industrial (-2.5% and -1.5%, respectively), but a 2% gain in multi-family. This is as of October, so it'll be interesting to see how much further down (or up, in one case) things might go. Not looking like panic mode in any event.

The whole world's buying...our dirt, again

Here's an interesting story on a Spanish billionaire, Amancio Ortega, buying 730-750 North Michigan Avenue for $350 million. Why is it interesting?

Even in this "down" market, the seller did not budge on its price and ended up getting a 40% unlevered return in three years. Not bad. It also shows that foreign money thinks that not only our companies are cheap, but so is out dirt...yes, it is still cheap, especially given exchange rates.

Now, we had a frenzy of foreign buyers here in the 1990s, as I recall. Some did well, others didn't because they dumped out at the wrong time. But it wasn't the end of the word then and it isn't now.

Fundamental changes coming in practicing law? Wishful but doubful

The always insightful Patrick Lamb has a great post about his participation in a meeting on predictions for business in 2008, and the word is not good. Calling it a perfect storm, Patrick wonders whether a down economy combined with lawyers charging outrageous fees to clients might cause a backlash against such firms, leading to fundamental changes.

I agree with Patrick that the hourly rates being charged are often insane, as are the salaries being paid to new law graduates. You basically have the choice these days of hiring me or Patrick or a second year associate at a large firm, and trust me, we'll run circles around a second year just because of sheer experience. And, unlike Howard Beale, while the clients may be mad as hell not enough are saying they won't take it anymore. Until that happens, then they will just take it and you'll see more of the same. But I hope Patrick is right and people come to the realization that the current system is broken. We might benefit from it and some firms and lawyers may suffer bigtime, but in the end I think it will be better for the legal profession in the long run.

Monday, January 21, 2008

Cubs Care Park: from New City to Humboldt Park

The Sun-Times reports that Cubs Care Park, formerly at the now-demolished New City YMCA, is going to be relocated to Humboldt Park. This follows up on the promise that the park would eventually be relocated as New City is transformed into a mixed-use development (Full disclosure department: I worked on this deal.)

Random Monday thoughts....

I know it is MLK Day, but it really isn't a day many lawyers I know take off. The staff is off and government is off, so it can be a catchup day. And I am going to start catching up right here with a few general thoughts.

Let's start with the No Fun League. Having lived in San Diego for a short time I was hoping the Chargers would pull off the upset over the Pats. (I know Jeff Brown was, too.) And as a Bears fan there is just no way I could root for the Green Bay Packers to win over the New York Football Giants. (Yes, I am old school, and that is the official corporate name of the team.) So I am happy with the NFC result, and happy for my friend Gene Leone, my old boss and the only big-time Giants fan I know well. (My partner Frank is also a Giants fan, I guess, but not on Gene's level.)

On to a few items of note. I just turned in my latest column on real estate and law firms for Law Firm Inc. late Friday. My columns are not online (yet), but you can subscribe to the print edition (free in the US!) at their website. I was reading this publication long before I became a contributor, and I am privileged to be writing for it.

Carolyn Elefant has a very nice redesign of her website, which brings in the new while also not straying so far from the old to make it look unfamiliar. I like the work, and I probably need to get in touch with the lexBlog folks one of these days about spiffying this place up.

Doug Cornelius has a highly-recommended post and article about financing an acquisition and construction lending with an emphasis on Massachusetts, where he practices. I've only done two deals in Massachusetts that I can recall offhand, and he reminded me of some of the quirks of working there. I did have a minor difference of opinion or two with Doug on some small matters, but nothing that would stop me from recommending the piece.

Thursday, January 17, 2008

Is it a commercial real estate crunch or a separation of wheat and chaff?

I say the latter. Why? You had to expect that over-levered and too-optimistic deals were going to tank. Yes, the credit crunch is hitting commercial properties, especially when you want to do a high LTV deal. I'm not so sure whether that means it is a crunch or just plain sanity.

Take today's Journal article on high-profile defaults and the Macklowe saga for refinancing. What is the leverage on the Eichner project, which is a casino/condotel in Vegas? (Gee, think we have a few of those around?) And how highly levered is Harry Macklowe again? These guys have made fortunes, as the article says, "living on the edge." Not everyone is that edgy, so to speak.

So I'm not going to be a lemming, even if, as Moody's predicts, "the corporate default rate for the construction and building industry could reach 12% this year the hotel, gaming and leisure industries." Why? The opportunistic investors are waiting, ready to pounce. One told me last week that s/he expected to have a huge year picking up properties from the people who did not invest wisely.

Tuesday, January 15, 2008

You want real estate statistics? Here you go!

Actually, go to ULI's The Ground Floor blog, where you will find predictions, yields, pricing on tranches of CMBS (look at the Carter-esque rates for junk and get a chuckle) and spreads by property type. Of course statistics are just statistics, and every deal is different. The one comment that made me think is that lenders will now have "their pick of the litter" when choosing where to lend money. It seems like there is still some competition for the very best deals, but lenders are certainly behaving like they did in the early 2000s and not like they did in 2006.

Monday, January 14, 2008 a car or 8.27 sf at The Chicago Spire?

I'm not buying either, but both go on sale today.

The Smart, with a base price of $11,590, starts shipping today. It's a nice little car from what I can tell. And it looks like it is sold out for 2008, with ~30,000 reservations.

The Spire's sales office also opens today, with reported prices of $1,400+ per square foot of space. I don't think it will sell out today, although there are about 600 appointments to look at the sales center. (Not much going on in the legal action discussed here previously right now; Shelbourne filed a motion to dismiss the adjacent HOA's complaint and the next status hearing is on the 28th.)

Both are very cool. I'd like to buy both unique products. The boss would love a pied-a-terre in the city and that is certainly on the dream list. I see it happening soon, though probably not at the Spire. As for the Smart, it is more in reach price-wise, and we'll have to succeed at dieting and wait our turn for a convertible version. (The boss also wants a ragtop, even though you can't use it here much of the year.) We're actually looking at an even more unique alternative vehicle for our short-distance driving -- something that'll turn heads.

Friday, January 11, 2008

Talk about change!

From housing projects and industrial uses to elite schools...The British School of Chicago is opening on North Halsted Street. Take a look at the results at the Sun-Times (while you can). Full disclosure: I have had some involvement in this project.

Thursday, January 10, 2008

Here come the capital markets associate layoffs

With CMBS still off those record levels requiring large staffs, Cadwalader pulled the plug on 35 associates today, which is roughly a 5% RIF. While other firms have tried other tactics such as sabbaticals and the like, this is also often the cold harsh reality of being a big law firm associate. I nonetheless wish these people well. Having worked with CWT many times this comes as no surprise. I'm glad they did not style these as performance-based cannings, as some firms did in the past even though they were for economic reasons.

I guess announcements like this also make me glad I have my own shop, because even though I may not have a BigLaw salary anymore I still own the joint, for what it's worth. Some firms, including ones where I worked would in my opinion take the hit in partner profits first.

But that may not always be possible in these days. Such is the nature of our profession. Actually, if you want a good and interesting read about how things have changed in law firms in the fifty years, check out this wonderful piece by Abe Krash in this month's Washington Lawyer. Krash is a retired partner in Arnold & Porter (who started at that firm in 1953 when it was still Fortas, Arnold & Porter and had eleven lawyers) and an adjunct professor at Georgetown. You'll enjoy reading this story.

CMBS at $100 billion?

At this rate it would not surprise me at all. Many of us still see a pickup coming this year. Usually when people say there's a recession the announcement usually comes right as things are already starting to pick up.

Check out Traffic Court for the details from the Commercial Mortgage Securities Association’s Investors Conference. What I found interesting is the comparison between CMBS and ABS. The fundamentals are not as good as they were a year ago, but the LTVs are low and the terms generally better. It'll be interesting to see how the year plays out.

Wednesday, January 9, 2008

WSJ asks: are we on a retail real estate cliff?

There was a thought-provoking article in the Journal today about whether retail real estate is one the same cliff that residential real estate is. After all, Centro Properties teeters on the edge, Talbots is closing some stores, The Bombay Company has closed and even Starbucks finally admits that it has overbuilt. (How much are rents softening though? I'm not hearing much about this yet.)

Just like residential, it depends. It is often hard to generalize national trends in retail. Rule of thumb: Retailers always want to be where the action is. If an area is hot then there should be no worries. But if the area is overbuilt (which you see a lot of -- you may see in some markets absorption problems) or the market is in the dumper, then, well, not so much. I'm hearing of plenty of activity in some markets. And not everyone is slowing down or stopping. I know I read somewhere yesterday that Costco is continuing its expansion plans.

Another thing: as the article says, real estate (and especially retail) is cyclical. Not that I am a market-timing guru or anything, but it makes sense that, assuming for the sake of argument that we are on some general downtrend, to start planning a new development in a good location so you will be online at the right time. (Of course if you go beyond planning you have to convince lenders and investors of your strategy and you run the risk of empty dirt or worse yet empty storefronts. This is the importance of, as the story says, holding power.) Unless you think the next great depression is coming...and I don't.

Tuesday, January 8, 2008

You think two or three Starbucks per block might be overkill?

Starbucks has announced the inevitable: unspecified store closings. The return of Howard Schultz probably precipitated this. I like Starbucks (or do you call it Charbucks?) enough, but not enough to support that many locations. (Besides, I largely gave up caffeine when I started my own firm.)

Here in my area alone, we've gone from one (in-store) to four (three in-store, one standalone) locations in a year, with one (maybe two) standalones in the works. And for all I know I missed a location; that's Starbucks for ya.

Before anyone whines about lawyer salaries again....

Read this. Only a handful of law schools -- based on reported data, have an average starting salary for graduates above $100,000. Not a shock here: almost all are all so-called first tier schools.

Three Illinois schools -- Chicago, NU and Kent -- were in the top-25. I have not looked personally into Kent's high placement, but people I know and trust think it is a very underrated school.

Three Illinois law schools (NIU and DePaul, the last of which as a reputation for placing many grads in government work leading to judgeships) are in the bottom 25.

Even though I went to one the first-tier schools, I'm not saying you will necessarily get the best education there. But if money or getting a job is on the line or of prime importance, then factor this in. And don't whine if your first year pay is less than a BigLaw secretary.

Green Loans = greenbacks

Lisa Michelle Galley has forgotten more about green loans than most of us (guess I'd better start learning now given the trend and the demand for the product), so I can without hesitation recommend part 1 of her projected two-parter on the topic. The key? Don't just assume that LEED = green (or at least I think that's what she is saying); rather, set certain performance targets that will reduce a carbon footprint and use that as the basis for measurement, because actual performance will, down the road, really matter.

Sunday, January 6, 2008

Breaking a promise: thoughts on energy independence.

When I started this blog I said I would at almost all costs avoid talking politics. But I feel I have to say something about the NH debates last night. I'm going to try to avoid the politics as much as I can.

I saw some of the GOP debate and all of the Democratic debate (not by design, BTW, just by accident. Much of it was expected and typical. I was impressed by some candidates, disappointed by many and I remain completely uncommitted.

One topic rankled me in what little I saw of the GOP debate: the idea of energy independence. I have heard things like this before, but I believe Mike Huckabee (for whom I honestly do not see me voting) suggested that our country undertake a space-race like mentality toward becoming energy-independent within ten years. It seemed like the other GOP candidates all but laughed at him, saying it was impossible.

No, no, NO! Stop thinking like that! I'm sorry, but the guy is right. And I'm not thinking about this from a global warming perspective -- again, I am not trying to get political here. But if we invest, really invest, in technologies that will make us less dependent on the Middle East and people like Hugo Chavez, is that not a good thing? Will it not be good for our trade balance and our economy? And might it spawn technologies that we cannot even dream of just like the space race did? (No, not Tang.) Won't it make the dollar stronger in the long run, perhaps stop a job drain and improve property values? (There, here's a dirt connection.) If there are tangential benefits such as greening then all the better, but I'm not advocating doing it for that reason.

I was almost sick to my stomach when I heard potential presidents say that we "can't" do something. This is the United States of America, the greatest nation-state in the history of this planet. To simply say "it can't be done" without even really trying is almost un-American. We've done the impossible before and we can do it again. And while I understand we must also have other priorities as well, I see nothing wrong with the idea of investing in ourselves and our nation's future and our nation's independence. Left, right or center, I hope we can all agree on that.

Condo going under? It might get ugly...very ugly....

Mark Pearlstein is one of the deans of condominium law in Illinois, and, while I don't really get much into his area of law, I did like the article he had in today's Tribune, and I am therefore linking it here. The long and short of it is this: if you buy into a condo building that is or ends up in trouble because the developer can't sell units and is in financial trouble, you could end up in trouble yourself. The association has to be turned over anyway and the options for a partially-sold are often not attractive. I'm sure the lenders of the owners will not be enthralled either. In other words: buyer beware.

Friday, January 4, 2008

A 40% drop = a return to normalcy? Yes.

According to this story, Jones Lang LaSalle is reporting that annual US real estate investment volume may decrease by 40% in 2008 from 2007 numbers. I'm sure some folks will look at this headline and start writing that the sky is falling.

In a word, el-wrongo. (I know, that's not a word, but I like the sound of it.) The point is this:

The volume will seem “sluggish” but “it is still a very healthy transaction pace”....While 2008 figures are expected to be below 2006 and 2007 numbers, 2008 volume is still expected to be more than the average annual volumes of 2002 through 2006.
Ding ding ding ding ding ding ding! Am I saying the world is perfect? Heck no! No one is. As the story says, there's a ton of very aggressive and relatively short-term financing sitting out there, but no one is really expecting a ton of foreclosures like you are seeing on the residential side. The real key here is this: we are back to where things were before we all -- buyers, sellers, lenders and, of course, their respective lawyers -- started running around like chickens with their heads cut off.

Now if you will excuse me, I need to keep a resolution and finish my non-fat yogurt breakfast and hop on the elliptical while watching all the fallout from the Iowa caucuses.

Thursday, January 3, 2008

Oops. I plain forgot.

I said some time ago that I would publish a review of the new Powerhouse Restaurant and Bar, located right beneath my Chicago office. And I never did. So here goes.

I've had a couple of lunches and dinner since the place opened, so I can be candid. All the food I had ranged from very good to superb. The pork belly and chicken thigh appetizers were wonderful. The pork chops were juicy and tasty. The ribeye steak was perhaps the best I've ever had (and trust me, I have eaten a LOT of steak in my life). Forget the red meant and cholesterol and fat and all that stuff for one meal; just splurge and eat it. One of my dining companions said the cod was good but not superlative in his view. I was really too full to enjoy the sweet potato doughnuts.

On the lunch side: I recommend the cheese quesadillas and the burger, which also has the tastiest bacon from Wisconsin. I'm getting hungry and I don't want to tempt myself...2008, after all!

Service is always first rate, from the valet service right through your meal and in the bar.

One warning: this is not a cheap place. Plan to pay. But it is worth every penny. This restaurant gets a wholehearted recommendation. Tell Jimmy I sent you.

Wednesday, January 2, 2008

The end of the Martindale era?

I'm reasonably sure we canceled our Martindale-Hubbell subscription. If we haven't, I need to make sure we have because there are better ways to spend money. Larry Bodine's excellent blog (I believe he is a consultant to many of my former colleagues) confirmed my beliefs this morning. (Supposedly MarHub did a rudimentary website for us. If you find it, don't look at it. Our website is here. We plan to revamp it this quarter.)

Time was, pre-Internet, that this was usually the place to go for finding lawyers in, for instance, another jurisdiction where you did not know anyone. Not any more. I am pretty sure I have never received any business -- nor has any firm for which I worked received any business -- because I am listed in the directory. These days, I send emails to my friends and colleagues if I need a referral, and most others do too. This is not a slam on Martindale, but rather perhaps a acknowledgment that times have changed. They claim to be revamping their business model, so we'll see if the brand can survive.

Why just women?

I agree in principle with this op-ed piece originally published in Texas Lawyer authored by Kathleen Wu of Andrews Kurth in Dallas. Wu writes:

There's been an awful lot written about what the legal profession can do to try to stop the flow of women leaving the profession after they have children and find 60-hour workweeks unsustainable. But I've seen very little written about how, once they've left the profession, firms can bring them back.

After all, few women intend to leave the work force permanently. Many would prefer not to have left at all but were unable to find a suitable part-time or telecommuting option.
My only bone of contention is this: why is it always and only women they talk about with respect to leaving the profession? Granted, they are the majority but they are also not alone. I started my own practice because I tried to work out a part-time/telecommuting option (try driving 120 miles a day every day) and could not. So while the thrust of the piece is spot on, I just wish it was more gender-neutral. Some men want lives, too.

New year, new beginnings, new deals

Welcome to 2008. From the dirt side this should be a very interesting year. Looking into my crystal ball, I see opportunity of a different nature this year on my plate in CRE.

I don't think I will see many "Wall Street Journal" deals (my term for transactions that make the national or major local media) on my plate this year, while I had a bunch of them last year. And that is all right by me. Lenders have money but are still being very skittish about how they want to lend it, a la the beginning of the decade. I think this means for me more smaller, under the radar deals, and probably ones I relish. By this I mean deals with "hair": distressed parties, crazy mezz loans or equity kickers, major due diligence problems -- nothing routine.

The one thing about those deals is that they still require a lot of work, meaning I have to bill about as much as I would on a larger deal. In other words, legal takes up a bigger chunk of the budget.

What else do I see? I'm having a hard time with it today. It may be a post-Rose Bowl haze (sorry, Illini fans -- I felt like the lone Trojan in town cheering on my school.) We can already predict that 2009 will be a tougher year for landlords as new office developments come on line, but I think that, unless tenants can hold off on space until then, 2008 will probably be a decent year for landlords. I'm noticing that retail is finally slowing down, at least in more marginal areas such as the exurbs. (The report that Wal-Mart is not building near my house, however, is wrong. That building is basically done. Now, whether that means a Sam's Club is on hold is another story....)

I think, however, that retail will still be good in the trendier neighborhoods that are more recession-proof. Tell me building is going to stop near downtown, and I'll be hard-pressed to believe you. Out here in passport country, however, may be a different story. I see so much dirt under development, together with empty new buildings to match it, that it is almost scary. The absorption could take forever. And my eyes are open; I'm also hoping market conditions are such that we'll be able to do a little more investing this year.

On the law firm front, I expect my business to grow moderately, which is just right for me. I'll tell you more about that as the year progresses. On a personal note, I want to get my golf handicap below 20 for the first time. I broke 90 late last season so there's a glimmer of hope. And of course we all want to lose weight. I saw that Jeff Brown (one of my favorite, must-read bloggers) did it last year (albeit on a smaller scale than I need to), but that was enough to inspire me. The elliptical is right next to me in the home office and I will be on it again today and every day I work from home.

All right, I have babbled enough for one morning. Enjoy the new year! Let's have some fun, do some deals and make some money!