I hope you will excuse the recharging I have had the last few weeks. Sometimes bloggers need that, you know, especially when you put out a solo effort without co-writers or guests writing with you. Let's face it: 2009 wasn't a great year for the legal profession or for real estate. The predictions of the bottom keep coming, but there is one problem: notwithstanding all the talk, try to get a loan for any decent size project, especially in development. Good luck.The big story for lawyers was cutting, cutting and more cutting. Rates, associates, partners -- you name it, and it got cut. I have...
Still more on GGP - up for sale?
According to Adam Metz per this article, GGP is exploring options with "multiple parties." We've been talking about that for a while.The good news is for those who bought low when it was uncertain whether shareholders would be wiped out. Take a look at its share price today. (We're talking less than $.50 at the low up to $10.67 Friday. Wow.)The suitors? According to James Sullivan at Green Street Advisors, count on Simon (the Prime acquisition notwithstanding), Brookfield and Westfield. I would still not be surprised if a "dark horse" emerged from the hedge fund, private equity or other...
Simon buys Prime. Is that all there is?
John Reeder has a good blog post on the Simon acquisition of Prime Outlets. I agree with his thoughts on market timing. I think buying before market bottom is fine as long as the numbers work. And Simon obviously believes that.If I recall, Simon had billions of dry powder. This is an 80% cash deal, so there is money left for other acquisitions. While valued at $2.33 billion, Simon is only paying ~$560MM cash and assuming debt and preferred stock obligations. Todd Sullivan says that antitrust problems may have played a role with multiple bidders and that Simon is out, with Brookfield the...
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retail
Thursday Tidbits - December 3, 2009 Edition
Sorry for the lack of posting lately -- a lot going on at work and otherwise and I haven't been inspired to write much. But there is much going on.Yet another (small) CMBS deal for Inland Western properties? That's the word.The NYT weighs in on the Block 37 situation.The Chicago real estate and zoning boutique firm Schain Burney Ross & Citron, Ltd. is apparently losing roughly half its lawyers to Thompson Coburn LLP after merger talks break down, including Messrs. Ross and Citron. I have always liked and respected the Schain Burney firm for their work, although I'm not sure why I never...
Real Estate and The Sopranos...
Sometimes real estate lingo sounds like an episode of The Sopranos. For instance:We gotta take a haircut on this deal, Paulie.Oh, just whack the tenant.Is (Broker X) a friend of mine or a friend of ours?We're gonna take out the bank. It's what we hafta do.Okay, maybe I am exaggerating. But taking out the bank is Joseph Freed's goal and its best alternative to a negotiated agreement since any such agreement at this point seems impossible. Freed is looking for equity and debt, according to Crain's today. You can read all about what is going on, including a hearing next Friday. While the receivership...
Shortsighted, indeed?
In yet another chapter in the black hole otherwise known as Block 37, that's what some people are saying about Bank of America, who got its wish today in the appointment of CB Richard Ellis as receiver over the retail portion of the property from Joseph Freed & Associates, LLC.As Eddie Baeb and Tom Corfman point out, and rightly in my opinion based on what little I know, "While the bank is within its rights to demand a receiver, the move may prove shortsighted, costing the bank more money over the long run and hurting the project's chances of success." Mike Reschke and David Stone, who both...
Now that's good work!
Kudos to Adam Metz and Company at GGP. Here's another 70 loan extensions at ya. I said some time ago that these guys know what they are doing. By the way, something I want to repeat but that I didn't say yesterday is this: Even though I have no connection to the company I really want it to succeed and stay on its own. I think there is still a first-rate team of folks there who know the mall business.The question of course still remains as to whether someone tries to swoop up the company as mentioned here yesterday. But they are hoping to get 170 of the SPEs out of Chapter 11 by year's end,...
Simon, GGP and predictions
A year ago, I said I would put a prediction in an envelope about Simon and GGP and see if I was right. Let's open it."Simon will end up owning part of GGP. But a team up with Westfield makes the most sense, especially if they do try to take in the whole company. This was done before so it is familiar territory for them."My grade? Incomplete. Simon now is exploring ways to use its dry powder to buy some or all of GGP. My bet is still on some, with some interesting lender negotiations perhaps to occur. I noticed Westfield, which also has plenty of cash, was also mentioned in the WSJ story...
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retail
Tidbits - November 16, 2009 edition
Haven't done any tidbits in a while, so here goes!Block 37 - everyone is talking. Gee, you think the judge and Mayor Daley might have told Freed and B of A to lock themselves away in a conference room and not come out without a solution and an opening of the center before Thanksgiving?Seventh Circuit reverses en banc on the FHA mezuzah case between residents and their the condo association. Read here for the opinion, in which the two judges who originally sided with the association changed their minds. (Thank goodness, thanks to changes in the law, we won't be seeing any more cases like this.)Finally,...
It's a PIP! How many new flags will we see at what are now Holiday Inns?
Okay, I'll admit it. I cannot remember the last time I stayed at a Holiday Inn. It isn't because I don't like the flag -- I do -- I think it is just a coincidence. (Full disclosure: I represent clients who have numerous franchise agreements with InterContinental Hotels Group, but I have not spoken to any of them about this post, nor do I know what their plans are respecting their properties.)In today's Journal there is a story about IHG's plan to force its Holiday properties to upgrade their hotels by February 1 or risk being in default under the franchise agreement, which means the lender...
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hotels
Bank of America making more local friends - The Spire spirals through court
First it was Block 37. Now it is the Spire. According to this Tribune story, Shelbourne Development and Garrett Kelleher are counter-suing the bank for fraud, saying that the bank was deceptive in the terms of arranging its portion of the financing for the now-dormant project. B of A went after Kelleher on a $4.9 million guarantee previously, and this is the response.As with past cases, I haven't read the papers and am not planning to do so unless someone sends them to me and/or pays me. According to the story, the counterclaim says that Shelbourne should not be deemed in default because of...
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Chicago
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kelleher
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lenders
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litigation
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spire
Personal Notes on the Hospitality Industry
I'm back from vacation -- and an old fashioned driving one at that! We had a chance to motor our way to Virginia and back, visiting several hotels in different categories ranging from reasonable to five-star. Here are some random thoughts I had last week that I would like to share with you.Some properties are really stepping up the food service, perhaps in an attempt to attract customers and if not, then locals. We had excellent meals at two hotels -- as good as top places in Chicago -- and on prix fixe menus that were really attractive pricewise. I can especially recommend 1863, the restaurant...
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hotels
The song remains the same....
Here's a nice little story comparing the downturn in real estate in the 1990s to the one today. And there are many: cheap and easy credit, big price drops in every sector (I remember a friend in California who parents could not sell their house for 40% of its appraised value), cap rate compression and the like. And there are differences, too. This cycle has even bigger job losses, while the last cycle had overbuilding in many markets. We had an RTC then, and I'm not sure we are going in that direction at all. CMBS is a major player (and problem?) instead of the lifes and all. Blah, blah, blah.Having...
Block 37 redux - "show" me the tenant!
So, more details are out on Block 37. Work from the awesome team at Crain's is that apparently Muvico walked from its anchor lease at the property but offered to come back at better (read: cheaper) terms. In other words, it looks to me like the old tenant cramdown.Freed, not wanting to lose the deal and presumably sensing it could still make money, takes the deal to Bank of America. Why? Because the lender as a rule in deals like this has the right to approve major leases or material modifications to existing leases. Sometimes there will also be specific criteria under which the borrower...
Block 37: foreclosure, receivership and all that
Is this a classic case of no good deed going unpunished? Or is it just a lender enforcing its rights, albeit at an awkward time.Bank of America, as the lead lender, is foreclosing on the retail portion of the long-awaited and oh so troubled Block 37 in downtown Chicago and will be in court this afternoon to have CBRE appointed as a receiver to keep the project going, including finishing construction. Unless there are some defenses sitting out there that we'll hear about, legally they presumably have that right, and even though Freed says construction could grind to a halt, surely the loan documents...
Kiosks -- for all you microretailer wannabes out there....
Here's a neat little piece about renting kiosks in the LA Times. I don't really remember seeing them in malls as a little kid, but installing them made so much sense. By putting them in what was once common area of the center you essentially create found money. (There are also common area carts, which is a slightly different beast; contact me if you want to know more.)It can also be a win-win for both parties. As the article says, kiosks can be a cheaper way for beginning retailers to get into the business, perhaps with a cheap(er) and short(er) term lease. And for landlords, while the rent...
Statistics on lender recovery by sector
Here is an interesting story citing a study by Real Capital Analytics showing that lenders might expect to recover about 60% of their investments on defaulted commercial loans that have been liquidated, with varying numbers by sector. Is that an incentive to renegotiate deals, extend and maybe pretend, or to look to sell the notes, take the 60% and run?The 60% is before costs and fees, by the way. I think it might be a sign that everyone is going to have to take a hit in this market. But we knew that already. My one quibble with the study has nothing to do with the methodology of RCA but...
CRE "failures:" A ripple, a wave or a tsunami?
Ask around. I have. Today's Journal has a story stating that Peter Cooper Village and Stuyvesant Town is in imminent danger of default (well, meaning two to four months), and that will be "signaling the beginning of what is expected to be a wave of commercial-property failures."It could be. We keep reading and hearing about the coming crash. But then you have Harvey Green telling us that the shoe hasn't dropped and will stay on the foot, albeit unlaced. (H/T to Jeff Vinzani for pointing this out to me via Twitter.) Green's take is that lenders needs to get a little more to the center. (I...
What a difference a year or two makes - random thoughts
Just a few quick observations and thoughts on the real estate market on a rainy Thursday:My nephew works at a bank and he tells me anecdotally that only 25% of mortgage loan applications are being approved. Is that tight underwriting, a lack of desire to loan, lack of capital, or something else?On a related note, lenders are really taking underwriting seriously. While it can be a pain, I think that is a good thing so long as the lender is actually doing deals.I'm looking at the October issue of ICSC's monthly magazine, Shopping Centers Today. At a mere 54 pages, it is a tiny fraction of the...
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trends
What has me worried
Yesterday we saw some optimism about cap rates and interest spreads that made me feel good. But what still has me worried?1. The dollar. We keep printing money and are running obscene deficits in the hopes that it will bring back the economy. Is the the 1970s (or even the New Deal) all over again, albeit on steroids? Remember, we are not out of the woods yet. And this story about the allegedly planned demise of the dollar as a reserve currency really spooked me. Maybe a weak dollar might encourage foreign investment in CRE in the US -- I understand that -- but that does not necessarily make...
Lamentable or not -- we lost. What next?
Losing the 2016 Olympics seems like a big bust for some people, including in the CRE industry. Yes, we lost a lot of potential public and quasi-public projects because the IOC decided to send the 2016 Olympics to Rio. By the way, does anyone seriously believe the 80,000 seat Olympic Stadium could have been built for $397.6 million? We all know on-budget Soldier Toile....err....Field and Millennium Park were. But this post is not about second guessing. Instead, where do we go from here? Infrastructure improvements, to me, seem to be the most important thing to concentrate on. Let's assume...
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Chicago
Cap rate spreads - making sense?
I really like this analysis by David Lynn posted at NREI. Why? Because it makes sense to me.At one point, the numbers were insane. People buying deals at a 4 cap with the unfounded expectation that the bubble would go on and on and on smelled of tulips in Rotterdam. And yes, the frost came.But look at the charts now, if you happen to be a chart person. Add in your risk premium and real estate is slowly starting to make sense again. Buy at a 10, sell at a 8 is the maxim I have mentioned here before. And as the caps reach reasonable levels, real estate's making sense again. That is the beauty...
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cap rates
Get a life? Insurance that is, for a CRE loan....
What do you think of these thoughts from Chris Vittetoe, now of HFF? (I have done deals with HFF in the past and like the way they work, by the way.)He tells us 80% of life insurers -- an old, traditional way of getting good size deals done before the CMBS boom -- are in the market. Of course, your LTVs are at 65% but decent rates, and then some aren't really back if you read this sentence: "We just met with one lender that has allocated $30 million for LA County for the rest of the year. That is $30 million for all real estate assets including office, retail and so on." That is one decent...
Are we in a cycle or a reset?
Here's a thought provocative enough to get me to post on a Sunday. RevPAR and occupancy are down so much at hotels that at least one industry mogul says this isn't cyclical:What the U.S. hotel industry is experiencing today isn’t simply the downside of a highly cyclical business, emphasizes Thomas Magnuson, but rather a massive fundamental shift. “It’s a reset,” declares the CEO and principal of Magnuson Hotels, ranked by Inc. Magazine as the world’s largest independent hotel group.So combine occupancy drops with supply increases and you have a whole new paradigm. Now for consumers that may...
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hotels
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office buildings
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retail
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trends
More on restructuring guidance - a good start but not a panacea
As I mentioned in my last post, I thought it was about darn time the government came out with some guidance on restructuring CMBS to allow modifications to individual loans in the pool without having to throw everything into default and the special servicer.That doesn't make this move, however, good, a cure-all for the market. As an excellent story in Retail Traffic points out, this just might be a delay to solving the fundamental problem rather than a solution. Think of it as, perhaps, a more complex and less personal extend and pretend? But the hope is not completely illusory -- but modifying...
Treasury issues CMBS restructuring guidance -- about time
Here are relevant stories: here and here . The gist? "The guidance would ease requirements for collateral and other guarantees in many cases. Borrowers in investor pools known as Real Estate Mortgage Investment Conduits would be allowed to refinance some loans without paying tax penalties."Why should this have happened sooner? Pain, that's why. As the WSJ notes,"Until now, tax rules have made it difficult for borrowers who are current on their payments to hold restructuring talks with the servicers of these bonds. Developers and investors complain that only those who are delinquent can talk...
I guess it's not impossible - judge rules against earnest money refund
I've written here before about buyers and borrowers raising defenses of impossibility or impracticability of performance or even force majeure under contracts because of the global economic situation. One of those deals was at 180 North LaSalle, where Younan Properties put down $6 million in hard earnest money to buy the building from Prime Group Realty Trust. Younan could not close and sued to get back the deposit.Judge Maki in the Cook County Circuit Court has told Younan that it loses. “The purchase and sales agreement is a promise to purchase this property for a set price on a set date...
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Chicago
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litigation
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office buildings
Surviving the market - take plenty of water!
Forbes has a good article out on the state of the market captioned Commercial Real Estate: Big Troubles, Small Bailout. The gist is that there is a lot of potential trouble facing the market and government will not be the solution.My favorite quote from the story is this one:California billionaire and Colony Capital Chief Executive Tom Barrack talked with Forbes in July about the struggle for survival in a downturn. "The object of the drill for everyone in commercial real estate--and this is everyone in the world--is just get to the other side of Death Valley. If you can make it to the other...
A shameless double plug
John Reeder was kind enough to profile me as one of his top 100 real estate tweeters at his fine blog, Real Property Alpha. I had a lot of fun answering the questions. By the way, if you are not reading John's blog, why not? He does an excellent job with it and I commend him to yo...
Bad underwriting + inability to refinance =?
According to this Journal piece, the next potential mortgage crisis. We, of course, have been hearing about this for a long, long time now. Extending loans (sometimes called "extend and pretend") has been working well, especially, when the property is performing; i.e., cash flowing. But there is less flexibility in the CMBS market, where investors are expecting to clip coupons. I am going to go out on a limb and do a little crystal balling here, so please realize that these are just my own personal views. There will not be a collapse. Special servicers will be working long and hard and borrowers...
Isolated occurences or great strategy?
Some real estate lawyers -- who probably know a lot more about the topic than I -- think the GGP bankruptcy ruling is "an anomaly rather than a glimpse of things to come." The theory, I think, is that this is a unique case mainly because of the brinksmanship: the whole company was thrown into BK rather than individual assets.I still think this is a great strategy. Sometimes to save what you have you have to go to the brink. GGP did. It was the first in this cycke and may not be the last.The gurus at Wachtell are saying, "[T]he GGP ruling may herald a trend towards bankruptcy filings by highly...
GGP about to start some heavy lifting -- what a workout!
Sorry, I could not resist that head to my post. This article sums it up pretty well. Lenders want their money back from GGP, in full, and now. GGP wants a seven year extension and favorable rates. The judge has been siding with GGP so far, from what I can tell, and the bankruptcy guru of gurus said it best when commenting on the judge's refusal to take some of the properties out of the BK:"The judge encouraged all parties to commence negotiations as soon as practicable in light of the decision," said James Sprayregen, partner with Kirkland & Ellis LLP, General Growth's co-counsel.Some...
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bankruptcy
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Chicago
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retail
The signs of the bottom are....
Take a look here, as Michael Houge does an excellent job of describing them, in my humble opinion.My favorite, to follow up on my last post, is #2 - The Bad News is At a Crescendo Level.I'll stop right there, which may make this my shortest post ever. Just remember, only a lawyer can write a 10,000 word document and call it a "brief...
Remember about optimism and pessimism....
If you are too optimistic, you are probably wrong. I've been there.If you are too pessimistic, you are also probably wrong. I've been there too.And yet I have little to dispute with the facts presented on this Fox Business video featuring dirt lawyer Stephen Meister about mezz debt, loan write downs, equity problems, extend and pretend and TARP. You can see the video at Real Property Alpha and Traffic Court. Mr. Meister thinks the tsunami is coming and points out a lot of good evidence supporting his case.It reminds me of a borrower-lender game of chicken. The process is being delayed, just...
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loans
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mezzanine loans
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trends
GGP: winning in BK, but at what price?
I'm not at all surprised by the ruling yesterday that rejected lender's motions to remove the automatic bankruptcy stay off a number of General Growth Properties' performing malls. As you may recall, several lenders tried to pull their malls out of the BK case on the grounds that the borrowers were special purpose entities. This may put GGP and its team in the catbird seat regarding loan negotiations and exiting bankruptcy next year.As the Reuters story tells us:In an opinion closely watched in the credit markets, Judge Allan Gropper ruled that those seeking to have the cases dismissed because...
Death watch or evolutionary cycle?
There's a lot of talk today about Maguire Properties handing back seven buildings to the lenders (one of which is another real estate company that bought the debt at a discount). The "imminent default" magic words language might also mean Maguire is trying to get into the hands of the special servicer, which leads to a workout or to a deed in lieu of foreclosure or something. Maguire bought these buildings at the top of the market.Some bloggers are calling this a "commercial real estate death watch." After all, "Lending hasn’t come back, prices are plummeting and those that poured funds into...
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foreclosure
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loans
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maguire
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trends
Is it time to buy?
That's what CBRE Investors is saying, at least in this story. And the analysis is sound, in my humble opinion."At this point, we don't know if we're at the bottom, but it appears we're pretty close, from the pricing perspective,” Lee Menifee, Global Strategy senior director with CBRE Investors, told CPN. "Over the last two or three months, there's been a firming of prices on income-producing assets with secure tenants, especially smaller deals." Waiting for the absolute bottom, as the story points out, could mean lost opportunity costs.There's one bugaboo, however: money. Money, that is, at...
The latest on Strategic Hotels - a missed target
Since I know some of you follow locally-based Strategic Hotels & Resorts, here is the latest from Crain's:Chicago-based Strategic Hotels, a real estate investment trust, said Wednesday that its comparable funds from operations were a loss of $2.5 million, or 3 cents a share, in the second quarter, compared with FFO of $36.4 million, or 48 cents a share, in the second quarter last year. Analysts on average had estimated a 1-cent loss in FFO, according to Bloomberg L.P.I'll let people who know more about the company comment. Regular readers know I have a soft spot for any company run...
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hotels
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strategic hotels
Shhhh...check out AAA spreads
Just a quick post to mention this story:Spreads on AAA-rated CMBS have narrowed by 100 to 150 basis points as a rally in these securities continues for the second straight month, particularly in five-year triple-A paper, according to a new report from Trepp. Predictably, the spreads have narrowed more on loans backed by stronger collateral, Trepp says. The narrowing has occurred even amid what the CMBS information provider calls "continued negative headlines." Combine TALF, underwriting and dealmaking and what do you get? This. Let's see where it goe...
GGP - people didn't see this coming?
You can't be serious. The way this case is going, and now with a plan delayed for quite some time, we see this:[GGP] at a hearing said it was considering ways to treat some of its subsidiaries as a single debtor and override their status as separate companies, according to a transcript of the hearing. Perhaps even more stunning is this howler:"This was a surprising development that was probably saber-rattling on General Growth's part," said Daniel Rubock, a senior vice-president at Moody's, who attended the hearing.Saber-rattling, yes? But surprising? Not in my humble opinion, as I think...
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bankruptcy
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retail
Never bet against Goldman Sachs
That isn't a bad credo to have. Here's an interesting post on a Reuters blog about Goldman shedding assets, writing down real estate investments and apparently hedging on their loans. Also not surprisingly, they appear to be using "'cash instruments as well as derivatives' to reduce some of the firm’s commercial mortgage exposure."Yes, they are taking the bet on CRE just like the residential market, figuring that the commercial market will follow suit with high amounts of default. And if it is wrong, having written down value, it can write the value back up. Not a bad business if you can...
Not over til its over
I'm glad to see people saying the recession is ending or slowing. That does not mean it is over for commercial real estate. Consider the following:Lenders are not lending what borrowers need, and loan activity is declining. I'm not sure whether that is a function of less demand or just futility. I've heard some real horror stories from clients, regardless of credit.If this is truly a jobless recovery, then it will be hard for the office sector to rebound. Add the sublease market to the equation and you see what I mean. And delinquencies appear to be on the rise.Ditto the hotel sector. With...
Experts Talk Hotel Woes
If you read the comments you'll see some discussions about single properties such as the St. Regis in California. But hotel troubles have been a macro issue, what with no money to lend, RevPAR down and business and leisure travel decreasing.Just like the original version of the Game of Life, the experts, according to this story, anticipate a "day of reckoning." Some may end up at the Poor Farm while others go to Millionaire Acres. According to Morris Lasky, the CEO of Lodging Unlimited here in Chicago:“Lenders have been holding off, hoping that industry conditions would get better. They haven’t,”...
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hotels
Uncertainty
It is a bad thing. So is a lack of confidence. One reason why the market tanked before was the lack of knowledge. And that is what we have here. We know prices on real estate continue to decline. Fear is in the street...maybe not blood, which is why more are not taking that time-old Rothschild advice to buy when there's blood in the streets, even if the blood is your own. The uncertainty extends to lending, because the market is nowhere near where it needs to be for CRE. People are scared on so many levels. Even the time honored tradition of eating out is taking a major beating. I don't...
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trends
Voluntary defaults and alternatives
That's right, we're starting to see an interesting strategy being put into play: borrowers are intentionally allowing properties to go into default in order to renegotiate a deal with the lender.In the case cited here, "Millennium Partners this week acknowledged purposely defaulting on its two-year-old, $90-million CMBS loan for the 277-room Four Seasons San Francisco with hope of renegotiating the debt with the special servicer, LNR Property Corp., because the hotel, once valued at $135 million, is now worth less than is owed. The strategic move appears to be working for Millennium and others...
And here's the MBA's take
$8.9 billion in property sales in the first quarter. We knew from local results the number would be down. Its opinion? "While the pace of the economic slowdown appears to be easing, different aspects of commercial real estate and commercial real estate finance are feeling different levels and types of pressure."Originations are down (no shock there), amd the CMBS market is dead (gee, imagine that!) but what I found interesting was that cap rates were, yes, up from 2007, but at 7.4% they are not as high as I might have thought. These are only reported deals, but it is an interesting sign that...
Is the buy-sell disconnect connecting?
That's what this article claims is happening, at least in Orange County. On top of loan money often not being there, the disconnect between buyers wanting to buy low and sellers wanting to sell high might be narrowing. Until that happens in many more markets, and money is there to lend instead of being spent on raising banker salaries then you'll see slow activity. Oh, and it goes without saying that a soft leasing market does not help either, and that won't improve for so long as unemployment keeps rising. I am starting to sound like Chicken Little again and I don't like that, so I'd better...
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California
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office buildings
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orange county
We won't be fooled again...or will we?
I think Jonathan Miller at Trend Czar may have largely hit the nail on the head with this post last week, captioned "Don't be fooled." The gist, in my opinion? The financial system has stabilized for now but it is in recovery mode yet. Some provocative points he makes are:1. Banks are building huge reserves with government encouragement while not lending much, hoping the economy will turn enough so it can write down some of its bad loans to reasonable levels. Then lending can get back to reasonable levels.2. The people closest to the toxic asset problem don't want us to know how bad things...
Thinking small ball...
In baseball some managers play small ball: a game strategy emphasizing single run production through bunts, hit-and-runs and base stealing. You see that more in the NL, where there is no DH. (And yes, I hate the DH rule.)The same is true in commercial real estate. While the big deals you read about in the papers are at a near-standstill, the smaller deals -- bloop singles, reaching on an error, etc. -- are getting done. There's money for those small deals out there, and that's all because of less risk. That and the fact that you do not have to depend on CMBS to do a deal. These deals aren't...
Welcome to the property boom of....2017?
That is what the head analyst at Deutsche Bank Securities is saying according to this Reuters story.The question in my mind is this: How can the rest of the economy come back without a viable CRE market? Does this analysis take into account improvement in other sectors which could lead to more deals, or is this just an analysis based on current falling rents and a prediction that we will not get back to past levels for eight more years?My personal opinion is that these predictions are a little too dire. Just as we were too optimistic at one point, one can get too pessimistic. Compare, for...
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trends
Are you a vulture?
I keep hearing the word "vulture" in stories like this. There are so many vultures out there you have to wonder what kind of real estate carrion they are actually eating.Most any sophisticated investor will tell you they are looking for value in deals, value that will allow them to make money. But right now we have two problems in the market. The first you know about: getting cash to do a deal and make it work. Here I speak mainly of loans, although you can also factor in finding equity to do deals or to refinance properties that have declined in value combined with increased LTV requirements.The...
Wednesday Tidbits - 6-17-09 Edition
Busy day today...but here are a few items on my radar screen this morning:A Chicago panel says the worst is yet to come. They've obviously seen a bid-ask spread. That and lenders have to start lending again. Don't believe what you are reading about that topic, in my opinion.Mark Walsh is back. You heard that right. "[T]he lead executive who loaded Lehman Brothers Holdings Inc. with toxic property investments, is part of a group chosen by Lehman to take over the bankrupt firm's real-estate private-equity arm." Read the comments in this story if you want some entertainment.Motions to dismiss...
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bankruptcy
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Chicago
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lehman
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private equity
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trends
$100 a square foot in Manhattan? Is that true, and, if so, is that the new market?
A couple of years ago, while trying to explain that my little local market was cheap, I told a friend that a large office building, 100% leased to a single credit tenant, and on a very good corner if redevelopment was necessary, sold for $100 a square foot. By contrast, I was just involved in a deal with a local medical office building costing and worth twice that.CPN is reporting:With rumors circulating of a sale price around $100 per square foot, the sale of the 66-story American International Group headquarters in Lower Manhattan likely set the bar for the biggest sale in the area market...
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new york
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office buildings
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trends
Want to know more about lender issues with recapitalization?
I think this post and accompanying charts from the Llenrock Blog pretty much say it all. So much so, in fact, that except for the quote below I have nothing more to say about it. They managed to make a lawyer speechless, and that's saying something. The quote?After working through this example however, I’m beginning to ask myself whether I’d rather just see the bank go out of business as opposed to putting an equity band-aid on its bleeding balance shee...
It might be, it could be....CMBS relief?
That is what today's WSJ is reporting. In short, Treasury is looking at giving some guidance that would allow borrowers and servicers to actually talk about some meaningful restructuring rather than having to wait to get to the special servicers, defaults, 1066 and All That. (The reason? Tax consequences.)Being proactive in this crazy market is, in my humble opinion, a very good thing. The most annoying thing, according to people I know, is knowing you have a deal that needs to be reworked, only to be told, for all intent and purposes, "We can't do anything until you stop paying on the loan."...
Commercial real estate sales decline up to 99% in Chicago
That's right. You read here and at Crain's. Many properties cannot sell because (a) there is basically no lending going on, regardless of what you may hear, and (b) buyers are afraid the worst is yet to come.Here are the Q1 2009 sector numbers for Chicagoland, per the story and Real Capital Analytics:Industrial: down 81%.Office: down 85%.Apartments: down 94%.Retail: down 99%. (Yup. Two properties, $12.5 million.)I guess the good news is that it can't get worse. Or can i...
Is CRE okay, a ticking time bomb or a lifetime opportunity?
That is what some people seem to be saying to Congress, even as the major banks are repaying TARP money to get the Feds off their backs.I am not making any predictions. But we know this: tons of loans are coming due. Special servicers are just trying to hold on, often by granting short-term extensions. Refi money isn't there for many deals, and when it is the LTVs aren't great, meaning capital calls or mezz debt. (Can you say Barry Sternlicht?) The question is whether the bleeding will remain stanched until things turn around or whether the stiches will burst and we will have Banking Crisis...
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cap rates
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CMBS
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office buildings
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trends
Why is BigLaw Shrinking?
This has been one of the top stories at the New York Times website for a few days now. I can give you my opinions, which you can also call a condensed version of the story.Not enough transactional work to keep people busy.Ebb and flow. This happened in the 90s, too, people. Granted these layoffs are bigger, but that's because BigLaw is bigger.Salaries got out of control. I was a beneficiary of this, admittedly. Firms are rolling back these increases a bit and I htink that is a good thing for them. (Don't even get me started about how I think we should close about 2/3 of our law schools.)To...
It's Friday already?
Work, etc., has been slamming me too much to write, but here are a few things crossing my desk:The sad story of the partially-built Waterview Tower: foreclosure and mechanic's liens from here to eternity. Expect this in bankruptcy court.I"m happy to see that my former colleague Carrie Risatti was named a principal at the Much Shelist law firm. Good for you, Carrie!Do we really need to change TALF again? Read David Bodamer's take.Is there retail optimism from franchisees and other smaller entrepreneurs? Will they help fill the void caused by some national tenants?Have a good weekend, ever...
GGP phrase of the day: "Relief from the Automatic Stay"
That's what lenders want. They want out of the quagmire so they can foreclose or do whatever they have to in order to protect their secured interests. Here's a great summary of what the lenders think:Attorneys for Metropolitan Life Insurance Co. and KBC Bank N.V., a unit of KBC Groep N.V., wrote in their motion to dismiss entities related to White Marsh Mall in Maryland: "It is clear that the petitions of the White Marsh debtors were not filed with any reorganizational purpose; they were filed solely to obtain leverage and a tactical advantage in any future efforts to extend the maturity...
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bankruptcy
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lenders
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loans
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retail
Recovery in CRE - two and a half years away?
That is the prediction you will find here. The lag of the commercial sector behind housing will be a factor, and certainly vacancies will also have to be absorbed on top of any new construction. Chicago has plenty of that right now. I guess once you see a flattening of new unemployment claims that will help. The step I always think is critical is an increase of temp hiring. I think companies hedge in initial hiring needs and a pickup there might be an initial sign of movement. Now if we can only see that! My hope of course is that we rebound faster, but I do know people that are planning...
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trends
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...
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bankruptcy
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Chicago
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retail