Blackstone in?

Okay, now things get serious on the GGP front. (IIRC, this was also brought up in February, so have they been doing due diligence all this time?) And people on Wacker Drive may not be thrilled because they know or at least think having the guys from Indy and their hedge funds looking over their shoulders does not bode well over the long term.  And that assumes they don't buy the company. According to Bloomberg Businessweek:

Blackstone’s “No. 1 focus has been on being our partner if we’re able to buy the company,” Simon said from the Milken Institute Global Conference in Beverly Hills, California. “But I think they are considering whether they want to buy some stock as part of a recap as well.”

The latest recap offer apparently keeps Simon below 20% voting rights. I'm not sure that matters. They would be in the game.

All this bargaining does not mean the sector is out of the woods.  The WSJ sort of reminds us of that today in this story of REIT stocks going up even though there is a lot of debt to structure.. GGP is unique in that is has trophy mall assets that can't be easily replicated. So the next move is?

ICSC Update and Tweetup!

I will probably skip most or all of Tuesday at ICSC, as I will have my family with me and want to do some non-work things with them before Memorial Day. But I will be Vegas from Friday on, and I am certainly planning to stop by the booths where people have invited me to visit.  If you follow me on Twitter I will note my whereabouts.

On Monday from 5-6 PM, I will be part of a Tweetup, a meeting of people who are on Twitter, being hosted by Dealmakers Magazine at Booth #S283 Q Street.  Many thanks to Anthony Pingicer for putting this on for all of us. I understand there will be a limit on the number of people they can host, but you can RSVP at  Hope to see you there!

How did I miss this one? Sam Zell at ULI

This post is a mix of politics and real estate.  I usually do not talk much of the former on the blog, but I feel impelled to do so today.  So stop reading now if you are not into that.

I usually watch Sam Zell's thoughts on the market carefully because I have a theory that you should never bet against Sam.  But I blew it on this one, until now, as I missed what he had to say at ULI last week.

Per NREI, Mr. Zell remains bullish on the US markets. But here is the quote: “I continue to be an optimist about the U.S., if no other reason than I think we are going to alter the current political situation. If the current political situation is indicative of the next half century, I think we’re screwed.”

Screwed? Wow. It is no secret that Zell has been a critic of President Obama. Check out this juicy statement in Crain's: "Zell said he saw similarities that are "a little eerie" between Nero's Rome and the United States of 2010."

And then to what he sees as the way to go? Distressed debt. Make sense. "I don't see any great equity opportunities on the real estate side in the United States. All of our activities have been in buying distressed debt in one form or another."

That said, I think equity deals can also make sense if you are buying at a good enough discount to value.  And Zell thinks hotels may be where to invest right now.

But let's go back to the above.  What scares people?

Taxes. A lot of people are frightened about tax hikes, which will be inevitable given increases in deficits and spending and government.  The carried interest tax (a/k/a the developer-killer) is the scariest one. There are probably as many ways to find loopholes as there are tax lawyers, but I think dirt people would rather just be building than worrying about how to create a ultra-complex structure to cut down on tax.  And then you have capital gain hikes as well, which may lead to more 1031s and other structuring issues.And then there is the possibility of a VAT or other additional taxes that will hit hard on --well, those who otherwise have the coin to put into dirt. Instead that cash may go to Washington.

Regulation. Again, it is the unknown.  What is going to happen in that realm? I'm even worried about the seemingly impregnable medical office market because we don't know what health care reform means for doctors other than many of them are sadly abandoning private practice to become hospital employees.

I'm sure his critics will say that Zell just sounds like a disgruntled Tea Party member. I don't think so. From talking to average people on all sides of the political spectrum, I think it is more a fear of big government that has a lot of people upset. And most of them, in my opinion, do not feel they have a political party that will truly represent their interests. I for one feel that if we just elect a ton of Republicans in November we will throw one set of rascals out and put another set of rascals in.  I have to wonder if the real solution is the demise of the so-called privileged political class and the institution of true citizen politicians who do the job for a few years and go back to their real jobs.

We get these anti-government sentiments historically and in the end they do not lead to much change. And that may happen here, especially if the economy goes in the direction most economists seem to think it is going.  (I know this -- stimulus money seems to be involved in every road project that messes up my driving to and from Chicago!)  Whether this sentiment will be fundamentally different remains to be seen, but November is coming. And we'll also see what if anything all of this does to the real estate market.

Simon's latest GGP play

So the latest letter from David Simon to Adam Metz is on the street.  They will jump into the recapitalization with $2.5 billion, together with another $1 billion from Paulson & Co. They say this is a better deal than is currently on the table in that they are not seeking warrants, and that they are also willing to work with the other bidders on a recap.  Finally, they expressed a continued interest in a financed acquisition of the company. (Thanks to Traffic Court for its summary of the situation.)

The letter also says, "Simon’s voting interest in GGP would generally be limited to 20% of the outstanding shares." That probably keeps the FTC off their backs, but I am no corporate expert by any means. At the risk of crystal-balling, what I do see is this: GGP will not want Simon as a major shareholder for very long. Everyone knows that. So, they either get rid of Simon -- sooner or later -- by dumping off some of the properties Simon is coveting. That is my immediate shoot from the hip thought on the purpose of this letter and a possible response. It may also force Pershing and Fairholme to up the ante further.  The game continues, that's for sure.

UPDATE: The WSJ moved a piece with an interesting sentence worth pondering: "The strategy could be viewed by the General Growth and Brookfield camps as an effort to undermine the Brookfield bid and eventually return to making a play for General Growth in whole."

Simon - still in the GGP game?

I found it hard to believe that Simon was going to pull out of the GGP bidding just because of antitrust concerns. It knew that had to be coming from the start. If there was a real reason it might have been more like, oh, we lost our chance to get the company cheaply and can deploy our powder elsewhere or something else.

The latest is that a revised bid is not off the table and that there could be a deal to dump some assets to make the deal work and keep the FTC off everyone's back. Simon of course covets some of GGP's trophy properties, as would any sane person in the shopping center business.  So let's see if that revised bid is forthcoming and what it says. And for those of you who sold the news yesterday, let's see where the ticker winds up now.

The DLB's Third Anniversary Post

Wow -- three years of blogging this Sunday.  Since I do not plan to write this weekend, I want to take a moment now to reflect on what the past three years have meant to me.

First and foremost, blogging has been fun and educational. I truly believe that, thanks to reading more, writing more, and interacting with pros in the business I have become a better adviser to my clients. Yes, the technical lawyering and drafting and stuff is very important. But I have learned much by trying to put on the glasses of your client and thinking practically, while also keeping that lawyer hat on.  That said, I know I am not the business guy, but I also think I can give better advice while at least keeping in mind that side of the coin. You just do the best you can.

I have also changed as a blogger, and hopefully for the better.  I get more news and posting from Twitter now than I do from the news or from other blogs. I do not know whether that is good or bad, but I know it is the reality of the situation. I am posting less, but I hope there is more to quality than to quantity. Just as I would rather have 1000 good readers than 10,000 not so good ones, I would rather write a meaningful post once a week than spew out garbage daily. I respect all of you too much to do that.

I've met, in person and virtually, some really great people in the field. I am still amazed that people read this blog or even give a darn about what I have to say. I have gotten a little bit of recognition -- or perhaps notoriety -- in the field, be it good or bad. Most people seem to like what I write, although you always have detractors. You just learn to be true to yourself, write what you feel and say to yourself that no one has to read the DLB. And I am okay with that. And for that matter, not everyone should read this blog. Yes, I said it before and I say it again: we have a self-selecting audience here of people who are commercial real estate pros. As I have said before, I do not dumb down what I have to say, even if what I say is sometimes dumb. There are plenty of blogs and news sources out there.

Has this been a great money generator? Frankly, no. But it did not take me long to figure that out.  I decided not to worry about that, to keep writing anyway when I had time, and to use social media as a learning and networking tool, not to mention as a conduit for my creativity in addition to my music. It has been suggested that I find ways to brand myself better and I expect that will be a future goal. I may not be the most successful dirt lawyer on the planet, but all in all I am one of the happier and friendlier ones, and there's something to be said about that. After all, life's too short, and no one ever said on his deathbed, "Gee, I wished I had worked more."

Last but not least, my thanks to all of you who take a few seconds or minutes from time to time to read my musings. I sometimes wondered, a la the musical 1776, "Is anybody there? Does anybody care? Does anybody see what I see?" In the music business we call performing to an empty house "playing for the walls." And yes, I've done that. While I sometimes felt that way here, too, I am reminded regularly that it just isn't the case. I hope you will continue to visit, and I look forward to meeting more of you in the months and years to come.

Best to all,

--David Stejkowski

Do things in moderation

I had to take the plunge and moderate comments today. There has simply been too much spam and junk that I do not want any of you to have to read. I do not generate -- nor do I expect to generate -- a lot of commenting on this blog anyway, so I should be able to post them fairly quickly should you decide you have something to say. Comments actually related to my posts are, of course, always welcome.

I know regular, loyal readers will understand, and I thank you for that!

A Story: Good Deals and Bad Deals

I had lunch last week with a local reader of my blog; it turns out we have a mutual friend in the business. I had a great time and I look forward to doing it again. I'm telling you this because of a great story that my lunch companion shared with me, one which, with his permission, I want to share with you.

My friend at one time represented a large real estate developer and landlord in commercial evictions, typically for retail deals with mom and pop tenants. He looked at the leases as a litigator might, and asked his client, the general counsel, why the landlord reps were not getting more guarantees, more security deposits and other terms that might help the landlord mitigate its damages if the tenant defaulted under the lease.

The GC -- a savvy guy in my opinion based on the way I heard the story, said that my friend was only looking at the bad deals. There were also many good leases, and if there were not some bad ones out there then the landlord reps may not be prospecting hard enough to find tenants. In short? The bad leases were okay because in the mix were many, many more good leases.

The moral of this story? Not every deal is a home run or even a double. Sometimes you have to do some deals that are marginal or have a little hair on them to make sure you are doing enough deals and filling properties. Perhaps the only thing worse than bad deals are no deals at all. The key is to do more good ones than bad, and that in the end is up to the business guys. Their jobs depend on it!