Thursday, February 25, 2010

G'day and Bucksbaum speaks....

Two quick GGP pieces this morning. The first talks about the reorg plan with Brookfield, which stands to make a killing if things go well. Predictably, Simon says: ""General Growth's proposed recapitalization amounts to a risky equity play on the backs of its unsecured creditors."  The story also notes that Westfield has also signed an NDA with GGP, meaning it has access to due diligence materials. So now we have the possibility of yet another bid, or a combination of bids.

We can caption the other as Bucksbaum speaks. He blames the BK on the economy and not the Rouse acquisition. And while critics will say that a company should be positioned to weather any kind of storm sometimes that just isn't possible. I don't know who is right about that but I do know that at least this bankruptcy has the possibility of making a lot of people whole.

Wednesday, February 24, 2010

A good GGP and a bad GGP

That appears to be the company's reorganization plan:  Split the company in two, with a "good company" holding most of the malls and with respectable returns, and a "bad" company, which has much more risk but presumably also more potential for reward. You could also set the bad company for a separate sale, perhaps to someone to has a higher risk tolerance but sees potential in those deals, such as 20-30 malls (including some Simon may want???), raw land, the residential arm and the low-slung Wacker Drive HQ of the company, which could also be a redevelopment project.

Simon is of course peeved.  Why? Because it'll have to spend more money.  This plan is riskier to the creditors, but it preserves the company, something Simon certainly will not do. As we learn more and I read more, I will write more. Right now? I'm off to lunch and then some quality time with my wife.

Thanks, as always to Jeff Vinzani for the tip.

Tuesday, February 23, 2010

And the winner is? The field may not yet be filled.

The Journal story in today's paper reference in my previous post also has a companion piece on page C10 that I commend to you. In short, Simon, thanks to the unsecured creditors' support, is in the catbird seat. But the GGP/Brookfield bid could have something going for it. And for the first time Uniball-Rodamco is mentioned as a possible bidder. (Rodamco North America owned some of these malls a decade ago, including a bunch of the trophy properties, only to end up having that arm acquired by Simon, Rouse (now GGP) and Westfield back in 2002.)  I guess what goes around can come around....

Monday's hearing on extending the reorganization plan ought to be a hoot.

Brookfield jumping into GGP

But you knew that already.  This may be the preferred bid internally as I would imagine Brookfield would keep management intact, while Simon wouldn't need to do so.

One thought here is whether Brookfield will get a good chunk of the company but sell Simon some of the assets it covets to make them go away. That makes sense to some extent but then Simon will want the trophies, the properties that make GGP valuable.  You don't want to end up with a shell or a company that just has dogs in its portfolio.  Honestly, I have no idea what is going to happen next. I do know that it ought to be interesting.

Monday, February 22, 2010

As the pot boils...

We continue to watch the Simon and GGP story. With my luck another letter will go out as I am typing.  Here's a few interesting tidbits in the interim:

I liked looking at this operating pro forma put together by Naveen Selvaraj.  (PS: the answer to his question #2 is, typically yes, which is why you have seen cherry-picking deals in the past. Of course, if Blackstone comes into the deal that could well be what happens, a la EOP.)

Todd Sullivan thinks Simon's plays so far are "near panicked." But if CRE prices are rising.... (dead cat bounce or not? Don't ask me.)

Simon bonds are weakening according to this Reuters piece.

And would this be a possible deal without a shareholder lawsuit

Money, power, greed, legacy...it is all there.  There are a lot of different dynamics coming into play in this deal.  Crain's sums it up quite well, as usual, in this story from earlier today. (I note that other possible bidders
are identified, as well.)

Friday, February 19, 2010

More Simon & GGP - gotta love lawyering

This is an interesting one. Simon (Blackstone?) has sent yet another letter to GGP in public, this time providing comments -- and disclosing -- a proposed non-disclosure agreement related to their dancing together during any discussions. 

Simon says, to wit: "General Growth's comments to the non-disclosure agreement are not constructive and make clear your apparent interest in precluding our offer from moving forward or being considered by your stakeholders." Of course. They are stalling for time. Time for a white knight.  I'm sure you have heard that the company is taking the step of seeking equity (!) during a BK, possibly from Brookfield but don't be surprised if someone else is lurking.

Kudos to Jay Rickey for pointing this one out to me!

Thursday, February 18, 2010

Negotiation Tactics -- GGP and Simon

Ah yes, getting to yes. Negotiation. We lawyers thrive on this.  And that is exactly what I thought when I saw the Simon letter to GGP yesterday.  You can see it reprinted here at Retail Traffic or here at Citybizlist Baltimore.

My take? Great posturing by Simon. First they say we're not interested, then they say we might be, and now they say they want the company but it has to be done quickly and at their price. I think it is a classic tactic designed to try to scare the creditors and perhaps the court into pushing for Simon's offer.  And it is a smart move. By trying to cut off any other potential bidders I think it keeps the playing field unlevel (Simon's protestations to the contrary about wanting a level field notwithstanding) as you have to know Simon has already done a boatload of due diligence.

So, on to the next step.  Metz & Co. will certainly respond, trying to drag this out enough to either see if there are more players, an alternative to remain independent via a white knight, to get a higher price or some other strategy I haven't considered.  I don't think this will turn into an EOP, of course -- we are in different times - but I would be equally surprised if the company sold for the number on the table today.

Tuesday, February 16, 2010

Simon bids officially for GGP -- it ain't over 'till it's over

As the Journal wrote today, this is just the beginning in my humble opinion. $10 billion does not buy the company. The WSJ identifies Brookfield and Vornado as potential bidders. And don't be shocked if one or two other players jump into the game as well, including private equity players that might keep the company intact.

Interestingly, with three possible bidders from the dirt game, could this turn into another Urban Retail Properties/Rodamco scenario, whereby the bidders each take chunks of the company, dividing the spoils? It makes the deal cheaper and probably eliminates any antitrust questions that could arise from a Simon acquisition.

So hold on you hat, and (hopefully not) polish your resumes. This ride could get really, really interesting. And if you are Bill Ackman, be prepared for a very nice payday.

PS: Retail Traffic has an excellent take on the bid. And to what extent does debt holding or buying come into play here? Remember we are talking about a company in Chapter 11....

Monday, February 15, 2010

And the worst sector is....

I'm sure people will argue this one, but my nominee is the hotel/hospitality sector. It has really been taking a beating in this recession. Here in Chicago, a few hotels near ORD have closed and others are practically giving away rooms.  Even luxury hotels are not immune, as evidenced by the recent announcement that the Ritz-Carlton Lake Las Vegas would shut down in early May.There has also been news that some properties are being sold for a fraction of their previous value, while others are just going back to the lenders.

I think the watchword in the business right now is hang on for dear life and then try to pick up the pieces on the cheap at the bottom.  Just remember, if you are buying a hotel (or selling one for that matter), make sure you have a dirt lawyer who has actually done a deal or two. And that lawyer should work closely with business folks at the client to look over potential pitfalls and work through legal issues that are more or less unique to this industry, or at least to franchised or licensed businesses.

Assuming a recovery takes place there could be some real opportunity here, especially on the resort end. The one area I worry about most is the business hotel, as I wonder when or even whether business travel will ever go back to what it once was. Case in point: back in the old days real estate lawyers had to be on site at closings or to help with due diligence, sometimes for days or even weeks on big deals. That still happens sometimes, but as often as not you can work from your office or even your home thanks to email, PDFs, electronic war rooms, a BlackBerry and other technology. Even overnight delivery sometimes seems quaint.

If anyone has any more expert thoughts on the hospitality sector, by all means share them. Once again I am not trying to crystal ball here, but I do wonder how and when this sector recovers.

Tuesday, February 9, 2010

How low could you go?

Any positive news is, of course, good for us in the real estate business.  So when the great Jeff Vinzani posted a couple of optimistic stories on Twitter I was happy to see them!  41% of private equity investors plan to boost their investments, but 29% plan to decrease exposure.  And JLL is reporting that lenders are looking to rebuild their loan portfolios. This bodes well, of course, for people looking to buy on the cheap or hopefully refinance if they can find the equity to kick into the deal.

What I found most encouraging -- and I am also hearing this anecdotally -- is that lenders are willing to increase their exposure on single-asset deals, to wit: "Fifty-six percent of respondents said they will lend $50 million or more for the purchase of a single property. Last year, most respondents were only willing to lend up to $25 million for one property."  You are going to need that kind of risk taking to make the market work.  You can sum this up in one word: greed. And I mean that in a Gordon Gekko sense, by the way. If lenders see opportunity at the right interest rates and the right LTVs, then of course they will start doing the deals -- lower risk, lower exposure, reasonable chance of a good ROI.

Of course, the cynic in me says, "Obviously investors and lenders are going to increase real estate exposure." How could you go any lower?  (Suddenly I can't help but think of Chubby Checker singing the Limbo Rock.) But at this point the fact that more people want to get back into the game is fine with me.  I'm ready to start doing some deals again.

Tuesday, February 2, 2010

TIC investing -- ouch!!

We've seen this coming. Years ago I sat in my boss's office, and we were wondering about the intelligence of highly levered tenant in common (known in the biz as TIC) deals.  Why? Because we were hearing tales of investors having absolutely NO business in these kinds of transactions, such as people putting the profits from their family farm into a shopping center with a 80% LTV loan in the CMBS market. My boss said, "If the market corrects while these people are still in the deal they are going to be literally wiped out."

Now, I'm not saying that is what happened here in this WSJ story, but.... Certainly it is illustrative of what is happening to small TIC investors in real estate deals, in this case a single tenant building where the tenant has blown out but is still paying rent.'

Cherry Road's collapse is an ominous sign for thousands of other commercial real-estate deals in which mom-and-pop investors pooled their money to get a tiny piece of the action. As unemployment and fallout from the credit crunch fuel rising vacancies and declining rents, a growing number of small investors are getting wiped out.
"We ended up all losing collectively $7 million of lifetime savings," says Lynn Rogoff, a New York artist who put $213,000 into the Cherry Road deal. Individual losses range from about $100,000 to $700,000, according to Cherry Road investors.
Ugly.  And this was a 70% LTV deal originally. I will bet a nickel there are many other deals out there like this. I hope and pray not too many small investors are being wiped out by this market. And I encourage them to seek legal counsel.

Tuesday Tidbits - Groundhog Day edition

With a dusting of snow on the ground where I live, there are no shadows to be seen, supposedly meaning an early spring. Guess I should start working on my golf swing!

A quick followup on Stuyvesant Town and Peter Cooper Village: some excellent thoughts from Michael Mandel and Llenrock Blog.

If you are in a traditional movie rental business; i.e. a storefront on dirt, you might well be hosed.

A lot of New York news today....

Cushman & Wakefield has hired Glenn Rufrano as its president and CEO; he is also a GGP board member.

Goldman is pulling out of the Hudson Yards development in New York. (reg. req'd.)  Related is staying in.

Sam Zell is buying Harry Macklowe's last three Manhattan apartment buildings. The Grave Dancer is unafraid.

Speaking of GGP, it wants an extension on its exclusive right to submit a restructuring plan. Thoughts?

Finally, if you want a scary chart, look at new home sales in Chicagoland. The word being used is, yes, obliterated.

Have a great day! I hope my Illinois readers have or will get out to vote.

 
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