Thursday, April 28, 2011

The CoStar/LoopNet merger

So, the big news exciting everyone in the commercial real estate world yesterday was the announcement of CoStar acquiring its rival and sometime litigation adversary LoopNet in a combined stock and cash deal expected to close by the end of 2011.  As always, Retail Traffic has excellent coverage of the deal.  The two companies are, as far as I know, the biggest national players in the commercial real estate information market.  Since I am a lawyer I do not use either service much, other than for news; but on the property information side I do have a preference for one company over the other.

When I saw this announcement, the one question I had was whether the combined company, given the market share it would have, would run afoul of anti-trust laws.  I am not the only one who thought that, as I saw a tweet or two to that effect and received a message from a friend (who can identify him/herself is s/he wants in the comment section) asking the same thing.

My initial reaction was that this might be a problem.  But then three things happened:

1.  Jason Sandquist correctly (and indirectly) reminded me that in many markets (including the small market where I live), the good old MLS is still king.  The commercial service providers are big on the national level but they are not alone for information.

2.  I saw in the press release the law firms working on the merger: Simpson Thacher for CoStar and Davis Polk for LoopNet. No slouches they -- two of the preeminent M&A law firms out there, with armies of folks able to argue that this deal is okay. (The business advisers were JP Morgan and Evercore Partners, respectively.)

3.  Finally, this little wire gem on termination fees: if LoopNet tanks the deal it pays a 3% fee, or $25.8 million.  If the deal tanks for anti-trust reasons, then CoStar pays LoopNet a 6% fee, of $51.6 million.  I don't know what is typical in the business, not being an M&A guy, but I believe the proposed antitrust termination fee for the NASDAQ offer to buy the NYSE is just over 3%.  So a 6% fee to me means someone must be confident it passes muster.

We will all keep an eye on this one, I'm sure.

Tuesday, April 26, 2011

CRE, Liquidity, NATO and Social Media

How do you get these three things into one blog post? Read on.

A somewhat encouraging article this morning on increased liquidity and demand for commercial real estate lending makes me happy.  As loans and properties reposition themselves one way or another, lenders have more ability to move money around as the balance improves. So more people -- alas, usually not the original owner in many cases -- make money.  The banks can lend again, the buyers of notes can reposition themselves as owners or restructured get the picture. And we lawyers negotiate all that stuff, for better or worse.

So why NATO? Because it is going away.  I am not, however, talking about the military.  I am talking about the NATO my father always referred to when I was a kid.  For him, NATO stood for "No Action, Talk Only."  And face it: that's all many of us in the business have been able to do for the last few years, too.  But now we seem to be moving into a mode where we can do more than do, and action is a good thing for us all, as it is the only way to make money.

Speaking of money, the NATO trend has slipped into the legal profession, too.  But the worst offenders of NATO, in my not so humble opinion are the so-called "social media gurus" who hound us on blogs, Twitter, etc. telling us they know the secrets to getting rich using social media.  There's only one whom I think is worth his salt.  If you are reading this wondering, "Is he talking about me?" I'm not. He knows who he is and probably isn't reading this post anyway.

So if you will excuse me, I have to go make some money now.  Have a great day!

Monday, April 25, 2011

On the Other Hand, the Good News Department - Local Retail Vacancies Below 10%

THIS is what I want to read.  And my retail developer clients want to read it even more.  Thank you Crains and thank you CBRE for the optimistic report.

The even better news?  Net asking rents are up about 3% from the previous quarter. So even though some retailers want to curb store size (Kohl's being the latest big box to join the trend, according to this WSJ piece today), they will want the store fronts. Let's see if it holds.

The CRE Market - Good News and Bad News on Deal Volume

Jones Lang LaSalle has a capital markets research report out that says commercial real estate volumes surged to just under $90 billion in the first quarter of 2011.  I guess that is good news.

But the surges were mostly in Asia, with Japan being the biggest player there.  (This was before the earthquake, tsunami and nuclear accident, by the way.)  Europe?  Activity slowed compared to Q4 of 2010. Year end deals?  Ditto the Americas: a "modest drop-off."  JLL takes pains to say that the worldwide volume is still up from Q1 2010, but then there was nowhere to go but up, right?

One thing I didn't notice was whether the volume, reported in dollars, made any difference because of the dollar's decline against most all other currencies. That, of course, is an entirely different subject that I will let the currency experts and economists figure out.  

The report also notes:

"There are sound reasons for investors to be looking at commercial property: its perceived inflation hedge; supply shortages in many gateway markets; appealing risk-adjusted returns when compared to more volatile assets; still-attractive pricing outside some of the prime markets which corrected earliest; and even a pick-up in both debt issuance and securitization. We expect a further $290-310bn in direct commercial real estate transaction volumes in the remainder of this year."
Translation: maybe a 5-10% pickup in deal flow over the rest of 2011.  Right?  Not bad, not great.  At this point you take what you can get.

What I see?  Big deals get done.  Little deals?  They take a back seat.  Mid-market deals, the ones in my sweet spot, are taking a long time to close, as due diligence is both due and diligent and everybody (rightly) dots the Is and crosses the Ts in making a deal.

If you see something different, please do not be shy.  We call have different perceptions. We discussed that at a planning commission committee meeting last week and it was a great reminder that my reality is another person's fantasy, and vice versa.

Wednesday, April 20, 2011

Get Your Malls for Sale!

Just one quick note: today's Wall Street Journal had a good piece on the big boys selling portions of their mall portfolios. Take a look here. And have a great Wednesday!

Avoiding the Appearance of Impropriety

In my legal career I have lived by certain standards. One of them is to not just avoid improprieties, as all lawyers should, but to also avoid situations that even create an appearance of impropriety. (I know at least one person who disagrees that I do so, but s/he is, in a word, wrong.)

Case in point: I serve on my local library board and am a director of my homeowners association. I also have the privilege of having been appointed to the county's regional planning commission, which studies and makes recommendations about macro land use issues in the area. Because of that appointment I have regular contact with elected officials and with county staff that might have an impact on matters involving my subdivision, which is in unincorporated territory. Although I didn't have to, out of an abundance of caution I have recused myself from any dealings with the county that involve my subdivision lest I be accused of trying to influence people improperly. I have refused to take on legal matters that I certainly could have for similar reasons. Has it cost me money? Absolutely. But I sleep better at night.

I'm sure my former state representative, Careen Gordon, is an honorable person. I admittedly did not vote for her in the last election because I never saw her touch on the issues; all I read and heard were ads that basically said to me, "Don't vote for my opponent because she is married to a doctor and lives in a big house." Since I am married to a doctor and live in an above-average sized house, I didn't think that was a good reason to disqualify a candidate from office.

After losing in the 2010 election, Gordon's was the crucial vote that raised our state income tax from 3% to 5% in a lame duck session, a vote with which I disagreed for philosophical and political reasons. Two days later, the governor nominated Gordon to serve on the Prisoner Review Board, a position from which Gordon wisely withdrew her name from consideration and to which she may well have not been confirmed.

Well, now we get word that Gordon has been given a state job that does not require any confirmation: as an associate general counsel in the Illnois Department of Professional Regulation, apparently to work on matters related to real estate. Hopefully she can start by fixing some of the changes for which she voted that are causing nightmares with small homeowners associations, or so I am reading from my listserv colleagues.

In both instances there were numerous complaints that the appointment/job amounts to a quid pro quo: trading the tax hike vote for a government gig. I cannot opine on that. What I can say is that I would not have accepted the position, at least not so soon after being voted out of office and changing my mind on a critical issues such as this. But that is me. And I wonder aloud whether we need legislation prohibiting those voted out of office from accepting any paid government position for, say, two years after leaving office. It sure would look better while not permanently depriving us of talented people in civil service.