Dominick's - your new lifestyle grocer

I've never been a big user of Dominick's Finer Foods. Why? Location. Growing up, I had a Jewel right down the street. The same is the case were I live now, but Kroger has gotten most of my business because I don't like the new Jewel and the new Kroger is just awesome. A brand new Super Wal-Mart is also getting some of our business because of price, and I am hearing the local stores' sales are down because of it (surprise, surprise).

Safeway bought Dominick's ten years ago, and its market share went down almost 50% in the first five years. Jewel outmarketed them, and Wal-Mart and Home Foods didn't help either. But as the Tribune reports today, the retooling of Dominick's into a "lifestyle" grocery continues. Some say it is a success, and others not. Personally, I like the new stores, but of course I am not going to drive 45 minutes to get to one.

If I were Safeway, I'd be more worried about the other grocery chain coming to town: Milwaukee-based Roundy's. Their CEO used to run Dominick's, and if I had a nickel I'll bet he will try to out-do Dominick's and probably succeed. Roundy's tried to buy Dominick's in 2003, and rumors were afoot last year that tgere was another unsuccessful run at the chain. Safeway has the cash, for sure, but good people also make a good grocery store. (For instance, I also happen to really like the employees at Kroger, and that is a factor in shopping for me.) Can they beat Roundy's in that regard? I'll wait until they open in Chicago before deciding.

Chicago = Dubai West?

Here's two reasons why:

1. The only skyline in the world that rivals Chicago's, in my humble opinion, is Dubai's. What they have done there is amazing. And even though I am not a big modern architecture guy, you have to admire what they are doing. Some of those buildings just drop my jaw.

2. It looks like an arm of the government is looking to acquire a 51% stake in the John Buck Co. Buck is, of course, a major player here in town, and it looks like the game plan is having their talented team help with development in Dubai and later regionally; presumably they'll retain a major presence here too and have the mega-bucks to buy, buy and buy some more. Alas, I do not know anyone over there well enough to ask, but I think it could be a win-win situation.

UPDATE: Tom Corfman reports that the Dubai-Buck JV will be 51% owned by Mubadala and that there are negotiations to take a stake (in an undisclosed amount) in Buck as well.

Random (and live) CMBS thoughts

I'm listening from Bourbonnais to a live ALI-ABA program on CMBS. Here's some thoughts, which I will update during the day:

Increased leverage is a big concern; commercial and multifamily mortgages are currently 23% of GDP, an all-time high. Credit, liquidity and information risk has all been mispriced. Has the mark been overshot? Pulling back to 2005 levels to a level when mortgage capital was in line means a 10-15% correction in prices using technical analysis. The market is not going to hell in a handbasket. Delinquencies should increase (they've been SO low), but this is NOT the makings of the 1930s.

I'm learning a little here about exactly how the tranches work for the coupon clippers; interesting to see that side of the deal.

All the lawyers speaking so far are lender's counsel. I'm hoping that changes later in the program. A lender's counsel talking about less due diligence almost made me spit out my lunch.

Beware of LTV reps in the current market, be they pure tax reps or not. And reping over something (meaning making a rep that you know it is not true because you assume it will never come up)? Man, I could not ever advise a client to do that. (Nor would these folks, although there are "override" issues such as zoning that sometimes are overlooked because of local custom.) Borrowers should say that something is not true, but that this fact will not have a material adverse impact, thus averting a fraud claim.

This should be self-explanatory and I shouldn't have to say it, but it bears repeating it anyway: if you are not a tax lawyer, don't try to re-write the tax provisions. And also remember that CMBS is not for flippers because of the required two-year lockout period during which you cannot defease a loan in a pool. (I once had a client learn this the hard way. But your buyer can still assume the loan, which is still a pain.)

Reminder: drafting a good non-consolidation opinion is painful. Very painful.

How do I get into the independent director business? Really? How do I? I guess the rating agencies are starting to shy away from this requirement or at least make it easier to comply with it.

Okay. I quit. I need a nap. Enjoy your day.

Where is the office leasing market going?

That's a good question. Some people are advising big tenants to lock in now while the going is good and the economy supposedly soft. Others are saying, especially here in Chicago, that a big glut will hit the market in 2009 and beyond that will rival that in the 1990s.

Both may actually be right. A downturn is a good time to lock in megaleases for office space because landlords want the certainty of a major tenant while the tenant might get a better deal. But if you were a smaller tenant or not dying to get space now, when absorption decreases and/or more lease and sublease space comes on to the market, then 2009 is probably a good time for you! It's all about the endless supply and demand.

I personally don't see us going back to the 1990s because I don't think we're all that overbuilt. There may be exceptions to this in some markets. As I have said before the other factor that could come into play that might change my mind is a major bloodbath with big tenants dumping space, and we're not seeing that yet.

Guest Blogging...

I don't do guest blog much. Heck, I hardly have time to keep my own blogging efforts up.

But I did tonight, at the one website I check every single day without fail: Jeff Brown's BawldGuy Talking. I'm seriously not saying this because I am the guest blogger. Jeff truly amazes me and excites me with his knowledge of real estate. And I do not say that often. He's certainly taught me a thing or two about investing, and I can guarantee you that if you read what Jeff has to say, you will learn -- and a lot, not a little.

In any event, my topic du jour was a quick little foray into entity forming considerations, including the LLC (but not always the LLC) and why it makes sense to . I did not even get into the tax consideration that can be available by using multiple entity structures, REIT considerations, and all that jazz. But I'm proud to be a guest blogger on such a great site and look forward to doing it again.

Scary times for retail landlords?

That's what this USA Today story (via AOL) implies. The list of retailers on credit watch is a veritable Who's Who of the industry, including "Eddie Bauer, Sbarro, Guitar Center, Blockbuster, Six Flags and Linens 'n Things." I saw a number of other big names there too.

That's the bad news. Let's not forget that some people have been predicting the demise of some of these companies forever, and it hasn't happened yet. This does not mean there will be more trimming, bankruptcies and store closings like we've seen with Wickes, Sharper Image and Bombay Company, but let's not assume every company on the list is a goner, either.

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.

More JPM & Bear -- working too fast can hurt you

I pride myself in working efficiently so as not to run up client bills and to keep a deal moving. But I've had to teach myself over the years to slow down sometimes to try to avoid mistakes. We are all human, and now I often finish a task, let it sit overnight and then look at it again before sending something to the client just to be safe.

Of course, when you are under the gun you cannot always do that. That came up for me Friday when a client leaving town for the holiday needed a full set of documents for a deal in pronto. I got it done and correctly, too.

Now we're hearing there may have been some mistakes or inadvertent language included in the JPM/Bear deal. Here are links to Overlawyered and Above the Law about some language that may have helped lead to the retrading we're seeing. I'm not accusing anyone (I've read nothing, after all), but we're talking the best of the best law firms working on this, and reading this is a reminder that no one -- I mean no one -- is immune from doing something that could come back to bite you later.

Lesson: whenever you can, take your time. I even used to put a Post-It on my PC that said "SLOW DOWN." It's something good to remember.

So now Bear is at least almost worth its HQ building...

Dimon upped the bid on Bear Stearns to a billion dollars -- still a little less than the estimated value of its headquarters but a lot more than $250MM. Will it go higher? Maybe. The market thinks so right now since BSC is trading above $12.00. It probably won't go to book value but almost anything's better than $2 a share.

In this market. money talks and you know what walks....

Up until this credit crunch hit there were a lot of highly-levered deals going on out there, some better than others. Harry Macklowe can tell you all about them. And sellers were willing to tolerate them because the returns were so high.

Now, of course, the cash buyers have the upper hand. Here's a great example. Unexciting office building, almost 30 years old, but in a great mid-Loop location (heard that before?) and with 94% occupancy, sells for $152/sf. Try to build that now. Even with any refurbishing you'll never get close to replacement value. And why did the deal happen? Cash, cash, cash.

Of course, most of us do not have pension funds or private equity at our fingertips. (Although you'd be surprised...sometimes it is a matter of introduction or connections and a good dirt person can be the local partner in a JV...seen that too many times to deny.) But it is a poignant reminder that money does indeed talk, especially when the lenders are speaking softly or even mute.

Why is an alternative work schedule all about minorities and women?

This piece in the LA Times is, in my opinion, so right and so wrong at the same time.

We've been talking about the concerned law students group for a long time now, and the problems have been going on as long as I can remember.

I agree that there are problems with minority and female associate retention and partnership promotion. But that is a systemic issue at all levels, not just those groups. It is not just female hamsters that are flung against the cage. People of all genders and colors go to BigLaw after leaving law school and most leave within a few years. That is the nature of the system as it currently exists.

Perhaps I am wrong, but my read of the story was an implication that only minorities and women are interested in flexible schedules (or that only white males are willing to work them). I didn't like that. Guess what: white males want lives, too. I ought to know.

There may be some changes, and there may not. It's all a matter of supply and demand, and right now supply is in the catbird seat, though if enough elite law school grads demand change it could happen. But the golden handcuffs of high salaries, partner-associate leverage and extraordinary perks could make that problematic unless there is systemic change in the
BigLaw system.

Bear's Manhattan space? Well, since you asked....

Jeff Brown wondered what would happen to Bear's dirt ion the wake of its collapse. Looks like we know what happens in Manhattan, and it's not a shocker. The Deal Junkie, citing Bloomberg, says that Bear's "best in the world" space will be occupied by JPMorgan Chase's investment bank. So, the IB guys win again. Go figure. And if tis deal goes down, what a great space for the money.

Everyone's selling REITs short

It looks like there is not much confidence in CRE, at least at the REIT level. David Bodamer (citing 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.

Yes, we have no associates...

This Canadian law firm has just shareholders and consultants. Like real estate agents, the consultants rent desk space and negotiate a percentage split of their fees with the firm.

I actually love this concept and want to find out more. There are plenty of young and older practitioners who want a stable environment without the pressure of having to bill 2,000+ hours. Now partners will lose some of the leverage-making profits, but that does not bother me. It also eliminates much of the BS that you see with some firms. But this is pure eat what you kill -- almost Glengarry Glen Ross so -- and that means you have to find work from people or find clients or both. Probably not for the faint hearted, but also possibly an alternative to hanging your own shingle after law school for some.

(Courtesy of the ABA Journal.)

Negative $1 billion?

That's what Kevin Kingston is telling us that Bear Stearns is actually worth when you take into account that its Manhattan HQ is probably worth about $1.2-1.3 billion alone. (But will it be still without an anchor tenant?)

As I write, it looks like the Fed's intervention over the weekend has helped, what with the market down only ~30 points as I type. (That can of course change in a flash.)

What does this mean for dirt? Well, the loss of thousands of jobs will mean more open space on the market, just what I feared previously, as JPMorgan Chase will just absorb the accounts. But it does not mean a total collapse. Bear rolled the dice and it came up 2, 3 and 12. The people on the don't pass line win. And could this mean a return to tangibles? Maybe. We know commodities are rising rapidly. But dirt? It is more affected by fundamentals. It does smack of more opportunity in the market this year for those waiting -- and with the wherewithal -- to pounce.

This can't be right -- law school teaching you how to be a lawyer?

There's an old saying about law school that goes something like this: the first year they scare you to death, the second year they work you to death, and the third year they bore you to death.

With all due respect to my professors, I found the third year utterly useless. I had classmates that did not attend one class the entire 3L year, and they did just fine. We were all worried about getting jobs in an awful economy.

Now the Law Blog tells us that Washington & Lee Law School is replacing its entire 3L curriculum with practical things such as time-tracking, client interaction...things you actually do as a lawyer! How refreshing. I've advocated for some years reforming legal education to including something similar to articling, as they do in Canada. The broad based training these people receive for their first year out of school is, in my view, a very good idea. I think it creates a more well-rounded attorney. Of course, I am speaking as a former litigator, so I have a little of that.

A few random thoughts on this reform:

1. I think I would make it optional, at least at first. The whole throw the baby out with the bathwater approach may be too innovative.

2. What will the accreditation people at the ABA say about this?

3. What will employers and prospective law students say? There's something to be said about voting with one's feet.

4. I'd be interested in seeing how realistic the training will be. If it is garbage in, garbage out ten it is no better than the typical 3L year.

5. What will the faculty reaction be? Is this a way of cutting faculty cost by replacing some with lower-cost adjuncts?

Wall Street woes and dirt

A few months ago I suggested that law firms lock in leases in busy markets such as New York because, even with the credit crunch, rents were still going up. I had one exception to that advice: big layoffs on Wall Street.

And now that is being predicted by today's Journal. And the numbers are not the prettiest.

It may be that the big boys hold on to some empty space if there is a bloodbath, under the expectation that they will need it again soon. But another likely scenario is that the firms, wanting to eat as little real estate cost as possible, might flood the market with cheap(er) sublease space for subtenants. Of course there are a lot of factors coming into play here (improvements and allowances, the lengths of the deals, landlords that may or may not cooperate), but it could bring some pricing into play in what has been a very friendly landlord market.

There's not going to be a rent collapse in my opinion. Heck, there may not even be much of a decline if any. But any lowering of Manhattan rents may be seen by the naysayers as more evidence of sky falling and all that, so be forewarned.

Chicago says - stop, soak the sellers too!

It looks like the Chicago City Council may have the sellers pick up the burden of the big transfer tax increase that will take effect April 1. Much as I don't like to see the tax increase, sellers are often the ones paying the tax (or, as some called it, stripping the equity).

What isn't 100% clear from the Tribune's story is whether the seller is only the $3.00/thousand increase or whether the parties will share the cost of the tax equally. The Sun-Times, however, did make it clear: it will be an unequal distribution. "Ald. Pat O’Connor (40th), sponsor of the ordinance, said he wanted to evenly divide the entire $10.50 city tax between buyer and seller, “But state law will not allow that to happen.” So, he opted for “the next fairest thing.”"

I'm no expert on the state's transfer tax law, but why can't they divide the tax equally? There are jurisdictions that do (Bolingbrook, for example). That's also my personal preference.

All in all, at the end of the day, just get out the old wallets....