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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ProLogis - who's right?

So where is ProLogis going - back up, or to toast city? We saw its stock pull a GGP last year, going from ~$66 to ~$2, and it is now trading in the $6 range.

CPN has a story today about the company pocketing money from selling its China operations and other activity that is making strides to reduce debt. The story goes on to talk about leasing activity, executive changes and everything else the company is doing to improve. By the time I finished the story I felt like this: link.

On the other side, you have Richard Woon, who was bearish on ProLogis last year and presumably made a lot of money going short on the company. Good for him! I need to do that more, but I do not have Richard's analytical skills. His takes on the company are here; while he has a new target now I'm sure he still has strong feelings about ProLogis. (And Richard, if you are reading, I welcome you to chime in with any thoughts.)

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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?"

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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.

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Tuesday update: Lehman, REITs, law firms and half-full or half-empty?

So Lehman filed but is now back at the table with Barclay's to sell significant assets to them, AIG might be next (a trillion dollars?), the Fed meets today and may lower rates (100 bps = panic city?) and the market's in the tank. Oil prices? Down. What's up? The yen and the Euro.

REITs also took it on the chin. GGP is especially being hit heavy. I've written before that GGP's not going anywhere, but in this market all bets are off. My ex-partner, an ex-Wall Streeter, told me it was "absolutely inconceivable" that Lehman would go bust. Simon, according to David Bodamer, might be being beaten up unfairly.

The word on the street seems to be: perception trumps reality. Hank Greenberg on CNBC tells us that "it is in our national interest that AIG survive" and that it is a "national treasure." This is an open plea to the Fed to save it because he says the problem is only one of liquidity. He then tells us that an AIG bankruptcy will cause systemic problems in the market that an unwinding would be "as complex as it could be." (Call the lawyers!) How much of Greenberg's wealth and retirement is still tied up in AIG? Apparently a lot. And AIG's nt really reaching out to him either.

So is this a problem among opportunities or an opportunity among problems? Gerry Riskin has a great cartoon about this at his blog, and that's an excellent question not just for lawyers but also for the real estate market as well. It is a competitive opportunity.

And finally, on the law firm front: where will legal work go after this huge change in the market (cream rising to the top), and are Heller Ehrman's days numbered after yet another merger -- this one with Mayer Brown -- falls apart? I'll be sad to see such a fine firm collapse if it happens.

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But then again...

Reports are that REIT prices are declining again:

According to the Wall Street Journal, real-estate investment trusts (REITs) saw a Q2 2008 that was basically opposite the first. The WSJ says the Dow Jones Equity All REIT Total Return index was down 4.9% in the second quarter. In Q1 of ‘08, it was up 1.4%.

I guess I am not surprised. The market on the whole has tanked lately. And also remember that REITs can be more volatile than stocks, especially the Dow or the S&P. They go diddley up-up, they go down diddley down-down. And let's not forget that the Dow in this case actually declined by more than the REIT index. So things could be worse. Oil and inflation are the dragging factors here.

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Going green -- remember, it's good for business and bottom line

Let's forget all the politics here. As I have said before, green practices can have a positive impact on your bottom line. Ask Lee Scott, who says Wal-Mart isn't green but undertakes green practices to make more money.

Case in point: TIAA-CREF wants to reduce energy consumption by 10%. Is that green? Yup. But it can also improve the bottom line, which makes your properties more valuable. Now, as Ellen Sinreich (one of the go-to people in the biz) says acceptance is not universal, but everyone knows it is the way the industry is going.

So what would make the industry go green faster? Incentives. Some tenants will pay more to be in a green building but others will not. Mandates can also help (as Lisa Michelle Galley points out in SF, which is moving toward mandatory LEED), but I prefer carrots to sticks. Things like what Chicago is doing (some requirements, but expediting permits and the like which can be a HUGE plus) and other incentives would move developers in that direction. Then energy costs; well, that will probably come into play as well at current prices. Much as we don't like admitting it sometimes it is cash -- not feeling good -- that drives this market.

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Everyone's selling REITs short

It looks like there is not much confidence in CRE, at least at the REIT level. David Bodamer (citing thestreet.com) tells us that investors are shorting REITs at near record numbers. So, even though REITs are way off their highs, the expectation is that the prices (both of property and stock) are going down even more.

This could be a time to pick up the stocks (on which we made a nice profit) or it could be a sign of more decline to come. There's no guarantees in this market. It all depends on your take of the fundamentals. Sometimes there's too much emphasis on the fall and prices overcorrect. Again, it's your call.

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