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.

 
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