Thursday, May 28, 2009

Ackman and GGP - somebody help me out here

Maybe I am just getting old and confused. I thought Bill Ackman was saying before that bankruptcy was the solution to GGP's woes. Now he is saying that the answer lies in a seven year debt extension. As we know, management was already trying to get extensions before the filing. Or was his real game plan a BK and then a forced extension to the creditors? You tell me, because otherwise I will never know.

I do know this: I hope Ackman's right about the bankruptcy judge for his sake and for others, including the human beings who still work there. I'm not sure a liquidation would be pretty right now. Actually, I am sure it would not. And if he is right, Ackman says that even at a 9.4 cap (compared to what - a 5.3 on the EOP portfolio?) he stands to make a 1300% cash on cash return. Nice money if you can get it.

Wednesday, May 27, 2009

TALF and Ratings - Get Out Your Cash!

Here's the latest gloom and doom piece -- perhaps warranted, too -- this time in the Journal. The point? It is great that the government finally got on the darn bandwagon by including CMBS and commercial properties in TALF, but that's just not enough.

Now, if we are going to have all this bailout money in the first place (we will not get into the philosophical or practical arguments of how to repay all this debt) including the commercial sector is important in my opinion. But, as the story points out, only top-rated debt is eligible. And S&P is telling us that it may downgrade a boatload of properties, thus rendering them ineligible for TALF money.

A lot of people blame the ratings agencies for getting us into this mess in the first place by rating deals AAA that had no business being so. And now when they want to clean up the mess by downgrading these deals, it could create another, even larger, problem. Jeez.

The moral? Owners are going to either have to pony up equity to stay in their deals, bring in mezz lenders who could make a killing with liquidity, have a fire sale, do a deal with the special servicer, walk away or...well, you get the picture. Not a pretty one. With LTVs on loans going down and property values declining, this could be the era of the capital call.

Friday, May 22, 2009

Back in the saddle....

Before I get another email asking when my next post will be, here it is! I was on vacation for the last week and too out of pocket to really write anything useful. I will be hopefully working on some material this weekend, because my work schedule is packing up with deals the next two weeks. I hope this is a sign.

In the meantime, I haven't yet had the chance to get any intel on RECon/ICSC in Las Vegas last week. If anyone has the time to give to quick thoughts or post links to the best material on the convention, I'd be most grateful. Please feel free to do so in the comments section.

Thursday, May 14, 2009

Condemnation - beating the system

Condemnation was a hot legal topic a while back, what with the awful (in my opinion) Kelo decision and all. So, I have to admit I like it when a private property owner is able to buck the system.

It appears just that has happened in the south suburbs of Chicago. Here's the story. Anna Mae "Babe" Ahern is 101 years old. She's spent her whole life at the Evergreen Country Club in Evergreen Park, a 95 acre property her family has owned for eons. Before you start thinking it, ECC is not some exclusive private club. It appeals to the average Joe, and Ahern claims her course was one of the first to allow minorities to play. Its rates are affordable, and while I haven't played there, it looks like a nice enough track from the street.

In 1999, Ahern offered to sell her "inheritance" to a developer back in 1999, who offered $25 million for the land so it could build a Home Depot and some housing. The village, however, nixed the idea by refusing to rezone the property. So the deal tanked and a golf course it stayed, to this day. (HD was built just down the street, if I recall correctly.)

Here's where it gets ugly. The village decided it wanted to buy the property for what it says would be recreational purposes. When a price could not be agreed upon (surprise, surprise), the village decided to file a condemnation action to take the land. Ahern naturally opposed the lawsuit. You already know the contentions of the parties. The village wants to value the land at its current use (with a value of $5-6 million), and Ms. Ahern replied by arguing that the village should pay the value based on its highest and best use.

The little old lady demanded a jury. And, after deliberating a whole half hour, the jury sided with...Ms. Ahern. Yup. If the village wants the land, it has to cough up $25 million. It should not be allowed to keep the zoning downgraded to lower its value for condemnation purposes.

The village says it is looking into its legal options, but I would not be surprised if this just sat for a while, given the economic climate and, alas, the inevitable. I say: Good for Babe Ahern!

Tuesday, May 12, 2009

More on GGP, independent directors and substantive consolidation

While getting ready for work this morning, I found two excellent posts here and here at Zero Hedge. As you can see, these posts are from last month, but they still bear reading.

Why? It states what may be reality tomorrow, depending on the judge: that General Growth may be able to consolidate its SPE malls into the GGP bankruptcy. If that succeeds, chalk that up in part to good lawyering.

They are saying this is a procedural consolidation only, but is that really true? I'm honestly not sure. I readily admit that, while I worked on a number (say, a dozen or so) of these opinions over the years, I do not live, breathe and eat non-consolidation. No thanks. Here are some D&B thoughts, by the way.

Are there remedies? There could be insurance out there, I suppose. And law firms have, in every case, rendered legal opinions about non-consolidation. These, however, are reasoned legal opinions and while it may not be feasible to go after a law firm for its opinion, don't be shocked if someone tries to go after a possible deep pocket.

You may recall that I really didn't want to see GGP file, because of the human element and because of the very messy roll of the dice that BK can be. The problem is that this could bode a really tough future for lending, because of the impairment of the lender's ability to go after a single property. And here it just may be coming true....

Monday, May 11, 2009

TIFs -- call me skeptical, but...

Is this what TIF money is meant for? Moving Willis, a company that got a great deal at Sears Tower PLUS naming rights, from three downtown locations to one consolidated one? Does anyone seriously think they are moving to Oak Brook or Schaumburg? Or is this a condition to the lease? Are there better ways of spending money? Or is this proposed subsidy a good thing for Chicago and money well spent? I am a fan of good TIFs, but I'm not sure whether this is a good one. Perhaps others have opinions more informed than I.

GGP and SPEs - bankruptcy remote, bankruptcy proof?

Now that I have a few minutes, I want to comment on a great story in Friday's Journal about the General Growth Properties bankruptcy.

When GGP filed its Chapter 11, it also dragged 166 individual malls with it. How so? Each mall is owned by a special purpose entity, demanded by its lenders to try to prevent what actually happened. And this could have major ramifications throughout the real estate world. Why? Because (a) lenders thought the structure of the deals would prevent this from happening; (b) GGP wants to take the cash flow from the deals into general operating funds for the company rather than into paying these otherwise-performing loans -- in short, use the good malls to prop up the dogs; and (c) get some leverage in the bankruptcy.

For those of you saying, "Huh?" here's an explanation:

In past years, to get the malls' mortgages, General Growth had set up 166 "special purpose entities" whose sole purpose was to borrow money. SPEs are attractive to lenders because, according to legal experts, they are "bankruptcy remote," meaning their cash flows are dedicated to paying debt service. The lenders issued securities backed by the SPEs. Holders of securities expect the structure would ensure they'd be paid even if the parent company went bust.
If you have done any of these deals, you know that each entity has independent managers or independent directors or names of similar ilk. They are typically of the springing type, meaning that they come in to vote only in an event such as bankruptcy. And interestingly, the managers were replaced on many of the entities just prior to the filing. What does that mean? You decide for yourself, as there are many interpretations. And, depending on the language in the loan documents, "independent" isn't necessarily what one may think.

Finally, these deals were all backed by legal opinions as to banruptcy remoteness. Will lawyers be impacted? Maybe not. But you never know.

In any event, this is definitely something to monitor as it could have a major impact on the market. And if CMBS ever comes back in a meaningful way, expect even tighter bankruptcy remoteness covenants to try to protect lenders as much as possible.

Wednesday, May 6, 2009

Get your hotels for sale!

Crain's is reporting that Strategic Hotels is putting the Chicago Fairmont up for sale. This is a tough time to be selling hotels, and it is not the only property on the market here right now.

I've never really "gotten" the Fairmont, nor has it ever really stood out in the Chicago crowd in my opinion. And its RevPAR is, well, not so good. The one thing it does have going for it is an assumable loan until April of 2012 at LIBOR plus 70 bps. So the thought is buy now and ride out the recession for two more years, because money for big hotel deals isn't easy to come by today.

People are saying this is yet another sign of trouble at the highly levered SHC and that the company needs cash, and now. I don't know. I do not follow SHC enough to tell you. I only know that I always wish Churchllians well, and since Laurence Geller (who says his company is well-positioned) is also chairman of the Churchill Centre, he gets my best wishes. Maybe today's after-market conference call will shed more light on where the company is going.

P.S. Happy Flunk Day!

Tuesday, May 5, 2009

Urban wind technology

I haven't written about anything green in forever (a recession will do that to you), but I was intrigued the other week while driving through a rural windmill farm in Indiana. Now I can combine windmills with my blog!

Real Estate Ancillary Revenue has posted a story about the WindCube, a 22-foot high urban windmill of sorts designed to serve a single property. Its $300k cost can apparently be absorbed in part through tax credits and the like, with a relatively short estimated payback time.

In an day and age where you are trying to look for possible revenue sources and technologies that might make your building more green, I guess it is worth a look. I"ll also bet there will be some interesting counterparts in Las Vegas in two weeks.

Monday, May 4, 2009

Monday Tidbits - May 4, 2009

Happy May, everyone! Swine flu scares notwithstanding, I'm looking forward to what is left of the spring.

Work is still busy, but I did find a few interesting things in the blogosphere and the internet that I'd like to share with you.

Still confused by defeasance? Don't worry, most people are. My first one was . If you really want to learn more, here's a primer you might find interesting (H/T Deal Junkie.)

Do you think we're gonna see some M&A activity in the REIT market? (Short answer: yes.)

"Banks are shortening the terms on lines of credit that have long been used by companies to avoid cash crunches -- a sign that while lending is reviving, businesses are facing new hurdles to obtaining credit."

More news on a "rising tide" of CMBS defaults according to Fitch this morning, including the number of loans going to special servicers. I wonder aloud whether some borrowers are just trying to get to special servicers for workouts or to get attention? But could that strategy backfire?

Many investors don't want to do distressed deals? This, of course, just means fewer bidders are cheaper prices if there is less competition from fewer vulture funds. It could also mean the reality of getting workable financing is, in a word, problematic.

 
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