And yet more good news?

I guess one person's misery is another's opportunity. David Bodamer points out that the level of outstanding CRE debt is continuing to rise. Moreover, he notes a WSJ article that vulture funds are planning to buy assets in advance of any bailout.

Again, some very smart people have said we need government intervention, which is against my base beliefs but acceptable to prevent a meltdown. But isn't the market another possible solution?

On a lighter note: beanie baby cash buys Spire penthouse

Ty Warner, the Beanie Baby dude turned real estate investor, is buying the 10,000 sf penthouse at the Chicago Spire, which must give some people confidence the project is a go. We don't know the actual purchase price, though they were asking $40 million. That's a lot of Beanie Babies (a phenomenon which I truly never understood). Warner has (intelligently) diversified, buying up a lot of high-end hotels, IIRC.

Oh, and let's not forget LIBOR

A story in the Tribune today reminds me not to forget about the cost of borrowing:
While stocks turned higher, moves in the credit markets were more ominous. The benchmark London Interbank Offered Rate, or LIBOR, that banks charge to lend to one another rose sharply Tuesday, making it more expensive and difficult for consumers and businesses to borrow money. In addition, credit card debt and more than half of adjustable-rate mortgages are tied to LIBOR, so an increase isn't welcome for many consumers.

LIBOR for 3-month dollar loans rose to 4.05 percent from 3.88 percent on Monday. LIBOR for 3-month euro loans, meanwhile, rose to 5.27 percent, from 5.22 percent Monday.
It does not take a genius to figure out that money's very expensive, when available.

So now what?

I've been quiet the last few days. So have my clients. My reaction to what is going on comes on multiple levels and it is hard to put on paper, or silicon, for that matter.

Where do we go from here? Beats me. The Fed can print money and continue to make ad hoc decisions on bailouts. I know some businesspeople are more than a little worried from a CRE standpoint. As Robert Carr points out, even optimists are at a loss for words:

The best thing that can be said about commercial real estate, after the House of Representatives voted down a $700 billion bailout plan Monday, is that the industry lags somewhat behind what’s going on in the financial market today. Most experts agree that, after a shaky past month or two, a standstill has come over the industry, as financing has dried up, jobs get cut and corporate America holds its collective breath as politicians duke out the country’s future.

Yes, politicians. (Note the contempt in my typing there.) Congress never ceases to amaze me. Statesmanship is gone by and large. If you voted for or against the bailout on principle, that is one thing. But this point really angered me:

One common strand that tied some of the diverse opponents together: a tough re-election fight. Eighteen of the 21 most vulnerable Republicans up for re-election, and 10 of the 15 Democrats in the closest races voted against the $700 billion financial rescue, illustrating the political hazards of bailing out Wall Street without offering an equally generous hand to taxpayers.
The bickering and finger-pointing between the parties after the vote also irritated me.

Do people have no convictions at all anymore? Our country is more important than political gain, or even political office. Again, I'm not even taking a position one way or the other here. But it sure looks like a good number of House members in "marginal constituencies" (as the British call them) voted based on trying to keep their jobs. Sometimes you have to do what is right and not what is politically expedient.

And the most unkindest cut of all? Out of 434 representatives (there's one vacancy), one, and only one, didn't vote at all: mine. I guess Jerry Weller has already retired but is still collecting a paycheck. Unless there was a life-or-death emergency of some sort, shame on him. WLS-AM and the Joliet Herald-News report that apparently he was in the country and wasn't in Central America (where I think he's going to move soon) but he's also not saying what he was doing.

Lastly, what would I do if I were in charge? One thing: Suspend the mark-to-market rule. And go from there. Some smart people disagree with me, and that's fine. They think suspending mark-to-market could lead to Japan-like thought of not facing reality. I think mark-to-market does not reflect reality. I respect that opinion.

Is it me, or is this obvious?

Holland & Knight has some really good real estate lawyers. They do. And they give good advice to their clients.

Here's some they gave recently:

Banks are willing to work with commercial real estate developers on projects before trouble arises, and bankruptcy should not be part of the equation for either side. That’s the opinion of lawyers with Holland & Knight LLP, which discussed options for a down market with both groups during breakfast Thursday at the firm’s local headquarters.
Don't get me wrong: I absolutely agree with this advice. I just find it utterly unfathomable that any troubled developer would file an 11 or a 7 without trying to negotiate a workout with the bank. And I'll bet a nickel that this is what the lawyers said or at least implied.

The story, at least to me, just came off as overstating the obvious, and I'm confident that was not the complete thrust of what was going on at these meetings. Maybe I'm just not getting it -- it's Friday, after all. I don't have a single client that wouldn't talk workouts, nor do I know a lender that doesn't do the same. So maybe my clients are sophisticated enough to plan ahead for contingencies, both good and bad.

Reports: Heller will vote to dissolve tomorrow

Boy, I'd like to be a fly on that wall. The reports are here and here. Employees, including associates, will receive 60 days severance (WARN Act and all that) and will be expected to participate in the winding up of the firm (read: keep a phone, office and PC and brush up the resume).

Coudert, now Heller...great firms going by the wayside. As reminds us:

As recently as 2004, Heller ranked second on The American Lawyer's A-list, a ranking of firms based on a variety of factors such as profitability, pro bono representation, associate satisfaction and diversity ratings.
But I guess the watchword is "What have you done for me lately?" The cause of the demise?

A tough economic climate coupled with declining revenues and several litigation cases settled in a short period last year has put Heller Ehrman in a difficult spot. Profits per partner, a traditional measure of a law firm’s success, fell by 3 percent in 2007 to $1 million. The firm’s revenue per lawyer fell by 5 percent, to $805,000.
Of course you want to say, "People jumped ship because of a measly 3% dip?" That would make for a great greed story, but it is more complex than that. But it also goes to show you that even at the best of shops as an employee, you could be just a short period from...well...the dole. Food for thought.

I'm sure you'll see more updates at Heller Highwater. As for me, back to dirt.

Drafting contingencies

A lawyer on a listserv I subscribe to asked a good question today that I had to answer: what happens if a contract contingency is not met? The buyer is refusing to close and the seller wants to take the earnest money. The answer? Of course, it depends. But you knew that.

This is where good lawyering comes in. If you are the buyer, of course you want every chance to try to have wiggle room. But if you are the seller, you want to craft any contract contingencies as tightly as you can to curtail the buyer's ability to walk. Notices, efforts, deadlines...there are a lot of ways to do it. If you don't do this as a lawyer, then you could be allowing your buyer a rather lengthy free look at property with an easy out.

Let me give one concrete example: let's say you have a financing contingency in the contract. How do you draft the timing of the contingency? If the buyer fails to give notice, does the contract terminate automatically or is the contingency automatically waived? Neither? What about the efforts required? Does the buyer have to prive it tried to find a loan? Can the seller try to get the loan for the buyer or offer to carry the property? Does the seller have to cooperate in chasing down estoppels or subordnation agreements? And yes, I am stopping before I really get started. My time is my money, after all.

Just a humble thought for the day. Enjoy!

Another law firm may be done - Heller Ehrman

The report from says that Heller Ehrman is likely moving toward dissolution.

Management held a firmwide videoconference at 4:30 p.m. to update the partnership on the status of the firm's line of credit, opportunities for groups and offices, and "plans for an orderly transition (or wind down)," according to an e-mail announcing the meeting.
The blog Heller Highwater reports:

Something tells me there won’t be too may more of these “end of day” postings after today’s shareholder video conference. While the exact course of action isn’t known, word has it that it was a very difficult meeting and those who’ve cried on the inside didn’t hold it in any longer.
Apparently the firm's line of credit may be in jeopardy, and without that...well, you get the picture. Heller's been trying to merge for some time now, to no avail. (Could it be because they've represented plaintiffs against insurance companies, causing conflicts of interest?) I'm sure parts of the puzzle will move in blocks to other firms (particularly the old Venture Law Group).

If these reports prove true, it will be a shame. As someone who went to law school in California (the firm's traditional home base), Heller was one of the firms you respected, not just for the name and size but because of the quality of the work they did. Did you always agree with them? Heck, no. But good lawyering is hard to dislike. Others will disagree, and that's fine. This is my soapbox, after all.

If things go in the direction some are predicting, I feel bad for the incoming class of 2008, the junior associates and especially the support staff. This isn't a great time to be job-hunting, and I wish them all the best of luck if they have to scramble for new gigs.

There's the other shoe...Trump wants a loan extension

So, maybe the retail sale is a backup plan. Or maybe it is a potential condition of a loan extension. Who knows?

What we do know, according to Crain's, is that The Donald has asked for a loan extension. And I expect he'll get it. We all know where the condo market is and right now things are not pretty. Often there are conditions on a loan extension such as a change in the debt service coverage ratio, different interest, selling chunks of the project, more name it. But this is a high profile project and I'd be stunned to see the banks say no. Whether there will be some heavy negotiating remains to be seen. Have fun, all you lawyers!

P.S. Donald Jr. says the hotel's doing great; and, by the way, if you buy there it means you get Rex Grossman for a neighbor (nothing personal, Rex, but no thanks).

Let's look at those crashing real estate prices!

Oops. Never mind. Nothing to see here....

Leave it to thanks

Earlier today I gave a basic philosophical thought: that government tends to make pretty much anything more costly and less efficient.

Then I read this. Game, set, match and thanks for proving my point.

Let's assume we need a bailout to keep the financial markets from crashing. (You can disagree with the premise if you like, but go with it for now. Humor me.) Congress has to do something to allow a bailout and stop whatever might happen without one.

What does the story tell me? While Rome burns, our elected officials are deciding whether to fight the fire with spit, buckets, fire trucks or thermonuclear weapons.

I am not trying to blame Republicans or Democrats here. Really, I'm not. But if there truly is a crisis of the proportions that politicians and government officials are saying exists, then lock yourselves in a room until you decide how best to fix it. No earmarks, no blustering, no soundbites, no posing for cameras and certainly no pre-election grandstanding. Just get in the proverbial smoke-filled room (presumably sans smoke) and do what we pay you to do: govern. If that much is really on the line, then be statesmen for once in your lives.

Or heck, maybe inertia is a good thing at the end of the day!

The BigLaw Squeeze - finding lateral partners in Chicago

Dear Tell me something I don't know. The "scoop?"

National law firms have rushed into Chicago during the past decade, especially in the past three years, but many are finding now that their collective arrival is fueling intense competition to fill those offices with lawyers.
I'd like to chalk it up to that old line from Meredith Willson's The Music Man: "But he doesn't know the territory!" Maybe so. But there's more.

Everyone and their mother seems to have decided to open a Chicago office, either by starting fresh with a few partners, by poaching from another firm, or by acquiring another firm. But, except for the larger players, then they cannot seem to grow it with lateral partners.

Some of it is just plain loyalty to an existing firm rather than jumping to a perceived greener pasture.

Sometimes you have good talent but a lack of a book necessary for BigLaw. To be perfectly honest, I am in that category. I neither have nor, more importantly, need, a big book of business right now. Some may find that awful; I actually find it comforting. If I go to one of the firms to which I am talking, great. If not, so far I'm better on my own than I thought I would be a month ago.

Others have good books, but lack something else that BigLaw might be seeking.

In other words, finding a partner (in the true sense of the word) isn't all that easy. So patience is a major league virtue. (BTW, I am patient, at least in this respect.) And some firms, simply stated, may lack that out of necessity, planning, money or otherwise.

My good friend Chris Percival hit the nail on the head (as usual):

There are about 75 national firms that have migrated to Chicago since the 1980s, and many of them seek the same types of lawyers -- those with books of business of at least $1 million and, likely, more than that. The firms often aim for offices of at least 100 lawyers and consider 30 to 50 essential to justify the cost of the office, said Chris Percival, a recruiter for Chicago Legal Search.

"I can't tell you how many firms have told us that's what they want to do," Percival said, referring to the 100-lawyer mark. "It's just not that easy."

Bingo! After all, you gotta know the territory.

Chris is awesome, by the way, if you need a legal recruiter. And she didn't even pay me to say that.

Trump dumping retail?

Eddie Baeb reports that Donald Trump has hired a broker to market/sell the four floors of retail at Trump Tower Chicago.

How is this done? Vertical subdivision. You subdivide the building into smaller parts, each of which then technically becomes a separate property. You then have an agreement between the various owners spelling out how matters are dealt with among them. This happens all the time and given the structure of the building it may already be in place. It also makes sense from a property tax standpoint.

Trump claims he probably won't do a retail deal but he is testing the waters. I'm sure the broker will just love to hear that.

I don't always agree with them, but in this case I do concur with Dan McLean, Larry Freed and David Stone. By selling the retail prior to the initial lease-up, you do lose control over tenant mix, and that could be really important in a trophy building. (It does make great restaurant space.) I see that as a little off, and I agree that it seems out of character. Now, I don't know where the building stands with loans and sales and all that, so I won't speculate on whether this is a cash-raising necessity. So keep your ears to the ground and let's see this one play out. It could be much ado about nothing, or it could be an interesting play for someone -- but who?

From overbought to oversold?

A couple of years ago, we were all riding a crazy, insane wave of deals that no rational person thought could go on forever. Confidence was at an all-time high.

Just as we had the highest of highs, now we see the lowest of lows. Record optimism has turned into record pessimism, or so says the latest DLA Piper State of the Market survey.

But let's think about this: is this any less insane than where we were a few years ago? Some say yes. Take this Business Week post comparing what is going on to a run at the bank. Just as we may have overvalued some properties and mortgage pools, are we now over-discounting them? It is a thought-provoking comment, at least to me.

I'm still torn about the bailout being proposed. Very smart people tell us that without it we could be back in the 1930s, but, at the risk of being political here, I've always been of the mindset that government involvement generally makes things more costly and less efficient. Here's a rational post that I found interesting. And the average Joe is apparently wary about this, too.

One thing I know is that the lawyers should, at the end of the day, make out all right. I keep hearing about some tightening of the belt, but the smarter law firms are keeping the bench ready for when this all hashes out. Of course, I thought that would be how long ago?

Breaking: Judge grants TRO to Anheuser-Busch

Breaking news: Judge Martin Agran has granted a temporary restraining order to Anheuser-Busch in its dispute with Tom Gramatis.

Apparently Judge Agran is a Sox fan, so he has no dog in this fight unless there's another Subway Series a la 1906.

What the stories don't say is this will likely lead to a settlement of some sort. Under Illinois law, one of the elements necessary to grant a TRO is a substantial likelihood of prevailing on the merits. So the judge agrees with Bud's position, at least on the initial pleadings. Presumably the contract between the sign company and the new owner can be tanked or go into effect once the Bud deal is gone, perhaps as early as next year.

Lease disputes go to a new level - red rooftops at Wrigley Field

The new owner of the so-called "Budweiser Building" across from the outfield of Wrigley Field (I remember when it was the "WGN Building") is in a tizzy with Bud over the rent. (The owner, by the way, is Tom Gramatis, who was in a tiff with Tribune Company over revenue sharing at his three rooftop clubs that ghe also owns.)

Apparently the new owner bought the building and there's a dispute as to the September rent payment. The owner has purported to terminate the rooftop lease and has inked a contract with a sign company to re-lease the space.

I have not read the lease, so I cannot say who is right here. I truly see both sides of the story.

When representing a tenant, I usually like to provide some notice and cure period -- even for rent -- before a lease can be terminated. And on the landlord's, I usually allow that. Why? Checks get lost in the mail. And apparently this was in the lease but A-B didn't pay anyway.

On the other hand, Anheuser-Busch claims it never got an invoice for the September rent. So? Are you telling me the lease requires an invoice? Somehow I doubt that, but A-B claims it was. Assuming A-B knew where to send the money, it probably should have. The "I need a phone and fax number" excuse is a little lame, but the FEIN requirement is a little less so, especially if A-B's claim that it was required under the lease is true. You need to know who your vendors are. But then, do you want to risk a lucrative contract for such a detail? Not my call here.

Now, maybe the buyer wanted to get rid of the tenant (gee, you think? The World Series being a possibility and all that), but I can't say for sure and I certainly do not want to cast any aspersions on the landlord. That would not be fair. After all, the landlord has a right to timely payment of rent, and if it does not receive the rent, it is well within its rights to terminate the lease, and if that means more money in its pockets, that's the American Way!

In a deal like this, here's what I would have done (and for all I know, it was here): the buyer should have demanded an estoppel certificate from the tenant stating that the lease was in effect, negotiated a document subordinating the lease to a mortgage (if required by the lender), and then, most importantly, the old owner and new owner should jointly have sent a letter to A-B notifying it of the sale and directing where rent was to be paid. In any event, notice to the tenant of the sale will probably a factor the judge will focus on in deciding this matter and determining whether the lease is still valid.

Concede this, baby -- GGP and recourse

General Growth Properties is wrapping up a $1.75 billion loan with Eurohypo, Wachovia and ING, and the Journal has just reported that GGP has agreed to increase the recourse from 25% to 50%. (For you laypeople, that means if the deals sours, the creditors can go after GGP to repay the debt directly.)

Usually you try to limit your recourse on commercial loans. But lenders are pushing for recourse again, and the fact they wanted more here makes sense. And knowing you have a backstop does make the loan more attractive. GGP has a lot of debt coming due, and they are negotiating deals to refinance.

GGP's a good company with solid properties. So I am not surprised to see this in print:

But Bernie Freibaum, General Growth's chief financial officer, said in an interview late Thursday that the greater recourse was granted to attract additional lenders, not to mollify those already committed. "It doesn't cost us any money," Mr. Freibaum said of the recourse change. "It doesn't change the interest rate. And if it helps us complete the deal, then it was a good business decision."
Of course, you still have Macklowe sized debts, but the difference is that you have time -- a couple of years -- to figure out options. Share prices are way down, but I agree with the Fitch analyst cited in the story who said GGP's goals are achievable.

Happy Friday!

What a mad, crazy, insane week. I just listened to Paulson talk about the actions he wants to take, and I'm going to read and digest it all before I editorialize, if I do at all.

Here's what some others think:

Ann Sabbagh - ActiveRain

Tom Lindmark - Metropolitan Real Estate

Business Week

Ann Woolner at Bloomberg: Sue Them, Jail Them, Make Them Pay for Meltdown (yeowtch!)

The Journal

The Banks Get Their Presidential Pardon: You and I Bail Out Wall Street (Jeff Berg)

How much money? And what is the risk? (

For many on Wall Street, including dirt guys, this has been a week of firefighting, and we'll see whether the actions being taken will calm the winds enough to get the fires under control.

Two other tidbits:

ProLogis -- dividend up, guidance down. Okayyyyy. Some think this company's had it anyway, as Richard Woon (yes, again!) stated the other day.

$32 billion of Lehman dirt on the market -- and then some -- and people raising cash to buy assets at the right price

Charles Whitebread, RIP

I was sad to read at Above The Law that my GWATS (gifts, wills and trusts -- that's what we called the class) professor from law school, Charles Whitebread, passed away yesterday.

Most lawyers under age 50 probably know from his lectures for BAR/BRI, the dominant bar exam preparation course. I was blessed to have some great law professors, but Charlie really made learning law interesting and fun, believe it or not.

He was more than fun, though. Charlie was also a first rate legal scholar on criminal procedure, the Supreme Court and juvenile law. He'll be missed, and may he rest in peace.

Charlie's bio - USC Law School

Charlie's Homepage

Remembering Charlie Whitebread

Susan Estrich on Charlie

The Volokh Conspiracy (including comments from my law school classmate Ed Hoffman)

I said what a year ago?

In July 2007 I wrote the following about a CalSTRS sale of industrial properties to a JV of ProLogis and Lehman:
And (as I shake my head in disbelief), the cap rate was below 6% and might have been lower had there been more California dirt involved.
Did I think that deals like this would bring Lehman down? Honestly, no. But it sure didn't make sense then, and hindsight and all that....

Thanks much to Richard Woon at Stripnomics for pointing this one out. I've added him to my blogroll on the right.

The mess of mechanics liens

So, Crain's reports today that Teng & Associates filed a $15.6 million mechanics lien on its affiliate's Waterview Tower project. (I wrote about this a couple of weeks ago.)

You may ask, why do this? Remember, Teng and the Waterview owner are legally separate entities. Even though the company and/or its CEO, etc. may have a bundle of cash tied up in this project (I obviously don't know the intricacies of it all), you have to protect yourself here to the extent you can. If the work has ceased and a contractor or sub has not filed a lien for unpaid work within the statutory deadline (90-120 days after the last substantial work, depending on who you are), then you lose your right to file the lien.

So, some might be saying this means the project could be in big, big trouble. I'm not going to speculate on that, except to say that (a) everyone has to wonder aloud about the ability to obtain sophisticated insurance product in this wacky market, and (b) you just cannot predict what lenders are going to do right now.

Absent real proof, I just can't agree with any gloom and doom predictions, at least not yet. For now, I chalk this up to CYA, and if I were Teng's lawyer I would have done the same darn thing. This does not necessarily mean the deathknell of the project. But what if, heaven forbid, the project does go south? You'd want to try to recover some of your fees, which means getting the lien filed. (I'm also not going to speculate as to potential defenses. This isn't the Construction Lawyer's Blog.)

In short: Good dirt lawyers plan for worst-case scenarios. (I know. I am going through one now for a client.) So, plan for the worst, hope for the best and, as Winston Churchill said, KBO. (That's keep buggering on, by the way.)

So where do the bailouts end? You tell me.

I honestly don't know the answer to the question. But the deal is done for the Feds to bail out AIG, just like it did with Bear and Fannie and Freddie but not with Lehman or Merrill. At least the loan, once again made under the "unusual and exigent" clause of Section 13(3) of the Federal Reserve Act, is at 850 bps above LIBOR.

Where do you draw the line? Is Ford or GM a "national treasure," too? (Those are Hank Greenberg's words, not mine.) What about the airlines (again)? Or some other distressed company? The line was drawn in the sand and then changed. Why bail out the bondholders? Certitude would be nice. But again, even though I am a free-marketer at heart, maybe this one had to happen too. Unlike Fannie and Freddie, I don't know. Some say it had to be done to prevent a collapse, but others say that the Fed should have let the market take its course.

Apparently Steven Udvar-Hazy wants to buy back ILFC, the aircraft leasing unit he founded eons ago. He's got the team so that deal makes sense of the money's there to do it.

Yes, AIG did home mortgages and insured lenders on defaults as well. They did do some CMBS work, too, I guess. (Someone correct me if I am wrong.) But they sure have real estate holdings.

But the effect of all these deals, especially Lehman, will be more write-downs and hopefully some much needed portfolio transparency. Interestingly, the big fear seems to be home builders more than commercial property. (Lehman was known, however, for doing risky dirt deals.) And I think that's right. Another interesting development is that B-piece buyers in the few CMBS issuances out there are negotiating heavily to throw out any loan they think is a loser.

P.S. Check out the huge spreads right now -- wow.

Speaking of opportunity

There's speculation that if priced right, the Lehman and Merrill distress could bring a surge in buying. But does that really open up the transaction and debt markets? Some say yes, others say, "Not so fast, my friend." They think paralysis is the watchword.

But if a fire sale of Lehman's real estate holdings is unlikely, then "right pricing is not as likely. Nonetheless, I agree with the premise that cash has to eventually be deployed. And it is, believe it or not, out there.

With the AIG situation changing literally by the minute, the market is focused on that and on the Fed meeting. But the dirt will still be there. The question is whether we see an orderly sale of assets over time, or a dirt deal to end all dirt deals that will involve more lawyers than I can count.

Other people's money

When I see what is going on in the markets, I wonder if sometime if some lender forgot that they are playing with other people's money. And we've been through all this before, at least on the dirt side.

I'm not going to bore you with a long treatise on this subject. Instead, just go read Jeff Brown's thoughts on the topic. In short, in some cases the foxes are in the henhouse. And he's right -- this was all so predictable -- and inevitable. I know some who were talking about this three years ago.

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.

Even I'm not this crazy -- or am I?

According to a survey by Sheraton Hotels, 87% of professionals who own PDAs bring it into the bedroom, and 84% check them last thing at night and first thing in the AM. And 85% sneak a peek at the PDA if they wake up in the middle of the night.

I am guilty as charged on all counts, except that I do not bring the BlackBerry into the bedroom. (It is in the master bath instead, charging overnight.) I used to automatically turn off the BB between 10 PM and 6AM back in the old days, but now that my BlackBerry is also my cell phone, I don't, in case there is an emergency and someone calls my cell. I guess the only thing I like about this is that I am not the only CrackBerry addict. I've just been one longer than 99% of them.

One other Lehman thought is this

This will put a HUGE hole in the Manhattan real estate market. Some months ago I mentioned that the time might be ripe to lease in Manhattan, but that the one thing that could really make things bad would be if there was trouble with the investment banks. And apparently there's already a lot of sublease space available.

Well, those days have come. If Lehman shuts its doors, that could bring another 2.2 million sf of space into the open market, some of which is owned and some of which is leased. Its Midtown HQ could fetch a billion in the open market, and predictions are that space could be 20-30% cheaper as a result of all this turmoil. How much coin are we talking?

Landlords would also sorely miss Lehman. In addition to owning its 1 million-square-foot headquarters on Seventh Avenue, the firm rents 2.4 million square feet at pricey New York addresses, including 399 Park Ave. and 1271 Sixth Ave. Lehman paid $250 million dollars in rent worldwide last year—a good slug of that amount going to Manhattan building owners. And it has committed to another $1.4 billion in leases over the next four years.
In other words, a lot. Those of you in BigLaw who read me may be thinking about your jobs, as the cuts already abounded. But in a way that seems silly since there will be so much work to be done, as well.

Lehman, AIG, and now Merrill? Think there are some busy lawyers?

First Barclay's walks from Lehman -- yet another suitor gone, and liquidationsville of some sort is being predicted. That is unless another angel comes to the table. AIG is looking to restructure itself, too -- they have rejected a private equity infusion and are apparently turning to the Fed. And now we are all reading that B of A and Merrill are looking to merge as well.

If Lehman really goes bye-bye, I will miss it. They did a good job on every deal in which I was involved. But the market is what it is, and some say this is the way Bear should have ended too. In this case, though, Lehman's world's end would be with a bang, not a whimper.

People are scared. As Matt Heaton put it over on ActiveRain, it is getting surreal. And will this panic the market tomorrow? I guess we'll see what Asia and Europe do tonight. I may have to cancel some meetings for tomorrow or at least keep an eye on the TV or radio.

The dirt angle of this is huge, too, in my opinion. These guys are all lenders, JV partners or owners of significant (to put it mildly) assets or mortgages. Where does this all go, how and for how much? There are predictions that the better capitalized investors may make a killing here, buying assets for a fraction of their total value. I had a client that was able to do that with a dotcom, and it was nice to get some of my money back since I actually bought some of that dotcom at the top of its ride, only to see it go bust a year later.

If there is an auction, or if companies have to dump dirt to stay alive, and the debt markets are completely fouled up, assets could be going quickly and cheaply. And that will mean armies of lawyers working crazy hours, not just on the corporate side but on the dirt side, too. Due diligence? Good luck. Careful analysis? As someone I knew in college had a habit of saying, "I doubt that."

The key here, in my extremely humble (for once) opinion, is to try not to get too badly hurt on the legal side while making the best business deal possible, either with the owner or the trustee. Lawyers do not like hearing that, but the reality is that you have to hold your nose for the right price when ordinarily, with time and analysis, you would not do so. Luckily most of the deals are probably not too hairy from a dirt lawyering perspective, but you cannot say that for sure until you look them all over. And if the timeframes are short, that means too much work and too little time in which to do it. Been there, done that.

BigLaw and SmallLaw partnerships - solutions to helping clients

As a now solo practitioner, I am sometimes asked how I can handle complex real estate transactions by myself. The answer? The same way I did at BigLaw. It is easy!

I was therefore happy to see this story about large and small firm "partnerships" for certain matters. I do wish they'd taken the next step, though.

Sometimes large firms refer matters to me because I can handle price-pressured matters at a more reasonable cost while also maintaining high quality. I can do it because of low overhead. And when my clients have huge deals needing a large staff, I send it to some great shops where I have relationships.

Other times firms refer work to me because they don't handle commercial real estate. So I am their guy, so to speak.

Out of state? I've got that covered with a network of local counsel that I've developed over 15 years in the business.

Non-transactional matters? No problem. I don't litigate, but I have friends who do, and I cannot tell you how many pieces of litigation I have referred to large and small firms.

What about wacky real estate matters? Sometimes I do them. But because the client comes first, I want them to have the best. So I have some sub-specialist lawyers on my list of people to call for some matters, such as GSA leasing, Cook County property tax appeals, local zoning, etc. I can do these things, but sometimes the sub-specialist is the right call.

Oh, shameless plug department: if you are one of those big firm or small firm folks out there (and I know you are reading), don't hesitate to drop me a line to see if we can work on deals going forward. I'm always looking to expand my base and meet good lawyers.

Blair Kamin on the Spire

He's right. It is a big hole in the ground. And the building plans do look much nicer, so much so that if the Chicago Spire doesn't get built here, it ought to be built somewhere. Garrett Kelleher's spokespeople claim that a GC will be hired soon to work on the above-ground stuff (details, details). The current plan is for a mid-2009 start. Call me cynical, but I wonder if some people are thinking mid-October 2009, since the IOC meets on October 2 to award the 2016 Olympics to some great city.

Another reason to wait a year: putting together a construction loan syndicate. Yes, Mr. Kelleher may be loaded, but he does not want to get into a Waterview Tower situation. You are better off with a hole in the ground for now, especially if you have cash to pay the interest on the A&D loan or finance it with your own cash. Halting construction here once you move up would be an unmitigated disaster.

And I'm not hearing much lately from Kelleher's lender of choice, Anglo-Irish Bank. Not sure whether they are on the sidelines or what. So a year gives everyone time to get more sales (a big must here), put together the loan and hope for the best. And I still sure hope this beautiful work rises from the hole.

If you can't sell it, spin it, and spin it some more

It seems like all talks have broken down regarding Lehman's sale of its real estate assets. So the game plan now? Among other things: Spin the real estate arm off to raise cash. This will be a separate publicly traded company that will supposedly reduce risk and maximize gain (huh?). Oh, and let's not forget the $5.3 billion writedown on residential and $1.7 billion on commercial dirt. According to Lehman:

Through the creation of REI Global, Lehman Brothers achieves an enterprise solution that removes the vast majority of commercial real estate exposure from the Firm’s balance sheet and realizes a true sale of its commercial real estate assets while maximizing their value. Further, it enables shareholders to benefit from the anticipated financial upside of the portfolio of assets.
The good thing about this is that the spinoff does prevent a fire sale. It think this will be interesting legal work for the corporate folks, with the dirt lawyers doing -- literally -- the dirty work.

But the other reality is that these assets are hard to sell in this market. And perhaps more important to the struggling company, it gets all these assets (and losses) off the books. So call it "a shrewd move," if you will.

As you can read elsewhere, there are other non-dirt deals going on to help save the company. Will it be enough? Beats me. I was always impressed by the ability of the Lehman real estate guys on deals where I had some involvement and they had been good partners for some clients in the past. Assuming the spinoff closes, an orderly sale (no new acquisitions are planned) will bring a slower flow of deals for us, but will also stop some crazy, wacky fire drill of a portfolio transaction that would keep lawyers up all night for weeks on end.

Fannie- Freddie takeover: Beginning of the end, and, if so, which end?

The big news this weekend was that Fannie Mae and Freddie Mac are being taken over into conservatorship, in a stopgap measure designed to give the next president flexibility on what direction to go. (Before you start saying that this is a commercial real estate blog, think again. These lenders are not only pervasive but they also account for a good number of multi-family and other similar products.

Now, I'll admit that I am by no means a fan of government takeovers. You blow it, then the shareholders lose, and I don't generally see the government as the solution to many problems. But here there may have been little choice. And doing nothing, especially during an election year...well, you get the picture. The mechanics of it seem reasonably fair, and I agree that it could have been worse. I'll be interested to see the FHLB's take and participation in this as well.

So who wins and who loses? The global market sure seems happy. And the Dow gapped up almost 3% on the open. Some short sellers may take it hard, and I'm sad to see the execs will get the golden parachutes, but all in all the Journal's take on winners and losers does not make me too upset.

That does not mean that all is good in the world. One big concern is that it may be harder for other lenders to raise capital. We are not out of the financial woods, and goodness knows how much this mess is going to cost at the end of the day. (Jim Cramer says if it is done right, it may cost nothing. But that's an awfully big assumption.) Nor should you expect to see any immediate turnaround. But maybe doing something here is better then nothing.

One last Inland Steel Building story

The owners of the Inland Steel Building, including Frank Gehry, are going to pump $40 million or so into their acquisition, which is almost as much as they paid for the building.

The upgrades, according to Alby Gallun, consist of restoration work, upgrading the mechanicals, redoing the bathrooms and adding an environmentally sustainable roof to help get a LEED certification. Yes, roughly 40% of the money is expected to come from government sources, such as a TIF and landmark tax credits. (These deals can be winners, obviously. And I find the landmark work fun on the legal side.)

Altruism aside, there's also a practical reason for these upgrades: over 60% of the building (for which they paid $246.50/sf and now will go out of pocket roughly another $100/sf or so) is vacant or will be coming up for lease in the next year. That could be good if there's one big big big tenant that wants that space, which is the owner's goal. And a landmark building with naming rights can be great for some tenant. Otherwise, brokers will have to scramble to find a bunch of smaller tenants. Without the upgrades -- HVAC comes especially to mind in a building like this -- the space is much harder to lease. I would not be surprised if some of the upgrades take place after an anchor is identified. I don't know whether the $40 MM includes ancillary retenanting costs, too.

(Residential) construction loans in the tank

Reports are that 8.1% of new construction loans are currently delinquent. (And no, that term is not an oxymoron.) That number is even higher in Chicago, where the mark is 10.8%.

What's driving this? Too many empty condos and subdivisions. The residential market's troubled, so that's where we stand.

A good tidbit was in the last paragraph: commercial delinquencies are only 4.1%. We don't know the local number. Hopefully this means we're not in for a bloodbath on that side of the world.

From big box to high end theater

Here's an LA Times story reprinted in the Tribune about super high end movie theaters coming to the LA area. We're talking $35 a pop, by the way, and amenities such a Belgian beers and gourmet pizzas.

Sadly, I didn't see any Chicago angle here, which means the cutbacks are precluding local reporting or people on the dirt beat at the Trib don't know about any local deals so they could add a graf or two to their story. Oh, well.

Another angle is the risk factor. I see these deals as risky in a way because we all know how theaters can go under and don't want to pay much rent. But in mitigation they can bring very heavy foot traffic and ancillary revenue, and if they blow out you have a shell that in some cases may not be so hard to retenant.

Personally? I almost never go to the movies anymore. And I love films. But we are blessed with a nice media room in our house. No screaming kids, no sticky floors, and you can pause for a bathroom break at will!