Dear Jenner & Block - stop working so hard!

A Trump Tower Chicago resident is apparently complaining that Jenner & Block's lights are on 24/7, and that this is disturbing her sleep, not to mention that Jenner's wasting energy. Not very green, I guess, but yhey are a BigLaw firm, and that's the way many of these folks operate. (When I was in BigLaw lights went out around 9 as I recall; after that you had to work them manually in your office.)

OK, so this buyer never bothered to check out a million dollar-ish condo at night for the views or other issues? She's apparently using eyemasks now (uhhh, yeah, a good idea), but that's not good enough.

But at the end of the day I don't understand why the Tribune story failed to catch a key issue here, one that hopefully makes this story a non-story soon. As I recall, Jenner is moving to new digs later this year. Hopefully that solves this "problem."

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A Trump Truce

Did anyone not see this one coming? From Crain's:

Donald Trump and the lenders on his Chicago skyscraper have agreed to put their legal dispute on hold as the developer wraps up construction of the 92-story tower.

Mr. Trump and Deutsche Bank Trust Co. Americas sued each other last fall over a past-due $640-million construction loan on the project. The developer claimed that the financial crisis gave him the legal right not to pay back the loan, while the bank demanded that Mr. Trump honor a $40-million personal guarantee he made on the loan.

But the two sides have reached an agreement “that provides for the suspension of litigation between the parties as discussions move forward,” according to a news release issued Tuesday.

“This agreement is evidence of the open and active dialogue that has continued between Deutsche Bank and The Trump Organization and of the parties’ combined interest in the success of this outstanding project,” Mr. Trump said in the release. A Deutsche Bank spokesman declined to comment.

Call me a little bird, but this will be quietly put to bed down the road. Yes, The Donald knows what to do when or he would not be where he is. Unfortunately we don't get to test the waters of the force majeure defense.

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Deutsche Bank to Trump: pay up, Donald

DB is not laying down in the face of Donald Trump's force majeure lawsuit. It has filed an action in Manhattan against The Donald, saying since the SPE formed to do the Trump Tower deal has failed to pay the lenders back, Trump personally owes the bank $40 million. (H/T to the HuffPo.)

Apparently, then, the loan had some partial recourse to Trump, who IIRC said he would not do recourse (or perhaps it was full recourse) deals anymore. The $40 MM, at least for him, seems to be a reasonable amount for recourse to me. The other question, which a NY lawyer would have to answer, is whether Trump's lawyer will be successful in having venue moved from Manhattan to Queens, where the force majeure case is pending. And if so, then that could be a good tactical victory for Donald by getting a case filed first. Kinda reminds me of spouses racing to the more favorable venue in a divorce -- not that anyone knows anything about that.

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Trmup's Lawsuit: Developer See, Developer Do

Tom Corfman's Crain's piece today predicts:

Donald Trump’s lawsuit against the menagerie of construction lenders for his riverfront tower is likely to be followed by more pre-emptive strikes by other developers.

Amid the prolonged credit crisis, such lawsuits could become common.

We've heard all the stories, so I won't bore you with lenders turning the screws on their borrowers. (Hey, the borrowers did it to them a few years ago, let's not forget.)

There were two opinions given about the lawsuit:

“We’re in an economic crisis, yes, but does that constitute force majeure?” said real estate attorney James Fox, a partner in the Chicago office of law firm Quarles & Brady LLP. “Only crazies would do that.”

The force majeure claim is “a stretch in this case, but it gave him a toehold,” said Mr. [Marv] Romanek, managing director with Northbrook-based Romanek Properties Ltd.

I wrote about this here on the 8th. The gut reaction was similar to Mr. Fox: economic problems aren't events of force majeure. But I don't know what the language is in the loan agreement. If drafted (im)properly, you might -- just might -- have a case. Look at the clauses here, for example. Others that I have looked at are too tight to beat Trump here in my opinion.

Moreover, assuming the allegations are true, would you want to have to defend banks in this climate that "no longer have the cash to fund the completion of the project" and that apparently refused to let Trump take steps to mitigate such as lowering prices? Again, I'm no Trump apologist and I think this is a negotiation tactic. While I still think he's got an uphill (mountainous, perhaps) battle to win this one, I'm no longer 100% convinced that the theory is utterly crazy or sanctionable.

The moral of the story? This is just another example of why, as a lawyer, you have to sweat the details, including the boilerplate. My favorite example of boilerplate coming back to get a party is here. (Free sub. required.)

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Legal term of the day: force majeure

Well, The Donald apparently can't get another loan extension for Trump Tower Chicago, at least not without taking a haircut, and we all know how Trump likes his hair. So he's suing his lenders and demanding more time, claiming that the global financial crisis is an event of force majeure that excuses his timely performance.

I obviously haven't seen Trump's loan, so I don't know the exact wording. But I deal with these clauses all the time. Literally meaning "greater force", a force majeure clause excuses performance under contracts because of acts of God, strikes, wars, riots, natural disasters, etc. I don't have my form book in front of me, but here are some examples online.

So the global financial crisis is an event of force majeure? That's an interesting and novel theory. Does it win? I can't say since I haven't read the contract and I'm not the judge, although my gut reaction is that this is a play for time to negotiate a settlement. Part of me really likes it.

If it does succeed, oodles and gobs of borrowers are going to be going to court. The thing is that if the story is correct, Trump can get an extension but at a big price he doesn't want to pay. His lawsuit also says the lenders have been unfair by not letting him lower prices on unsold units. Lenders can require minimum prices in the loan agreement on sakes, leases, etc. -- you see this frequently. But if Trump successfully makes the argument that the lenders were unfair in refusing to recognize market conditions and let him lower prices, effectively precluding his ability to cut his losses (especially if the lenders were not even covering their funding obligations), that might look great in front of a judge or jury.

I also don't know how a NY court is going to rule; presumably that was the choice of law as it often is on big construction loans. I am not admitted in NY, but the clause will probably be construed strictly. That's just one reason why NY is often the choice for lenders on these deals. The case was filed in Queens, which IIRC was Fred Trump's base of operations.

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Halloween Spooktacular Edition

Boy, there's enough bad news this week that I am catching up on to make you want to crawl in a hole. But I won't. It is a spectacular day and as soon as I can get done with work and before trick-or-treating begins, I am going out for a nice walk or maybe even nine holes.

Michael Mandel, citing a Morningstar report, tells us there's a 20% chance that CB Richard Ellis could go bankrupt. For dirt folks, that's would be as impossible as, say, Lehman going under. Oops....

I did not go to ULI, but David Bodamer did, and the mood there was pessimistic. Doug Cornelius has a link to the trends report here. On a side note, I got an email from ICSC yesterday telling me that hotels are cutting rates for next year's convention in Las Vegas. You know what that means -- fewer attendees.

No wonder the store closing signs are out at Value City -- they filed a BK the other day and plan to liquidate. Don't laugh, but maybe I should go check out the furniture outlets they have for a piece or two.

At the risk of being political, do you think if Tony Rezko was associated with John McCain the media would not be talking about it? (Yes, there was yet another indictment in Illinois yesterday.) And regardless of you you vote for, you have to almost laugh at the media bias this cycle, in particular the negative McCain stories. The independent report from Pew seems to say that Fox News really might be somewhat fair and balanced (I'm shocked at this, actually). MSNBC? Not so much.

Here's a Bloomberg story on Trump Tower Chicago and the Spire. Donald's working hard to extend his loans.

Speaking of loans, good move, imo, by Golub in refinancing the office portion of Block 37 a year early. Why take chances?

Enough. Enjoy your weekend!

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Calatrava files a lien on the Spire....the beginning of the end or the end of the beginning?

Grandpa will forgive me. He always liked computers. And I have this thing for writing about the Spire.

So, Calatrava and Perkins & Will have stopped their work on the building. (See also here, here, here and here.) If I were going to be the PR person, I'd say (as I have before), "Well, you have to do this in the ordinary course of business if you are providing work to the project in order to protect your rights against the property under the Illinois mechanics lien laws."

Here's the problem. Their PR people have said this, in addition to what I think they should: "“The amount will be disputed,” the spokeswoman says. “These liens, both of them, are sort of the normal course of business for these companies to protect themselves. That’s fully in their right to do that, and we will work to resolve them.”

That means there's more than a mere protection of rights here. There's a dispute. You do not have to be a rocket scientist to figure out this is not great news at all. We know Calatrava and Shelbourne are not talking much. Of course, money can fix disputes, but another thought here is that, without your architects cooperating, you're not going to get very far.

So, is this project kaput? I'm not 100% convinced, optimist that I am, but the 2016 Olympics and a turn in the lending scenario might be the real best hopes for this project becoming more than a hole. And the Trumps must be delighted.

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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?

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Wednesday tidbits

Why do I love technology? Because the weather could not be more perfect today here in Bourbonnais (in other words, an average day in San Diego or Santa Barbara). And, it is my wife's day off. SO, that means my emails and work calls will come in on the Blackberry while we run errands, go to the golf course and otherwise find ways to enjoy the glorious weather.

That being said, here are some quick thoughts for the day:

JLL's paying $613 million for Staubach in a down market with fears that tenant rep services will not be as in demand as in past years. I still think it is a good bet. Staubach is a primo brand in the industry. It is hard to put a tag on that price. Plus, the net present value of the deal is apparently only $317 million.

Recourse loans? We're going back to recourse loans? Good grief, that's scary. We all know about the Macklowe guaranty on his risky bridge loan, but I've been hearing about at least partial recourse quietly on some deals, especially new construction. That's gotta put fear or inertia in the heart of some developers. (I remember reading Donald Trump saying he'd never do a recourse loan again after his problems some years ago.) The alternative I would recommend for my developer clients is to bring in a money partner with enough equity to make the LTV on the deal small so recourse is not on the table. But such is the problem in this market, and by bringing in a money partner you lose much of your upside unless you negotiate a good promote and get good development and management fees.

Editorial: If anything's going to mess up this economy, energy prices will. So yes, let's drill for oil domestically and find alternative energy sources, especially for cars. (We already know nuclear is the solution for power but have to get off our butts and build plants.) Honda should license its nascent hydrogen fuel cell technology, and let's get the whole auto industry collaborating to improve and make the technology affordable. And not 15 years or 10 years from now. RIGHT NOW. Treat it like the war in terror because ultimately it is a big part of that.

OK, I'm done. Off to enjoy this day.

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Sorry, Ivanka

You're stunningly beautiful and very smart and obviously know our biz, but I don't think you don't know the territory.

Crain's moved a story stating that, according to Trump, "some of Oak Street’s high-end businesses are interested in the retail space planned for Trump International Hotel & Tower....Dressed in a wine-colored cut-down-to-there cocktail dress (similar to the one at the right?), Ms. Trump spoke to reporters before schmoozing with a crowd of 200 guests gathered for a cocktail party Thursday night on the tower’s 16th floor. "

But, as the story says, "a few Oak Street retailers are calling such talk a public relations ploy. Why leave millionaire’s row just off the Mag Mile for an unknown spot on the river, they ask."

Bingo. Can't see people leaving the Gold Coast because there's one building down on Wabash that has some high-rent rooms and condos. Just my humble opinion, of course.

(I'm sure Trump would counter by saying "look at Trump Tower" but (a) that is New York, (b) that was the 80s and (c) I was not terribly impressed by Trump Tower's tenant mix the last time I was there. Nice building, but it's no Oak Street from a retail perspective.)

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Ground leases...oh joy, oh rapture

I've done a ground lease deal or two in my time. They are fun. But if you are buying a building subject to a ground lease you have to make sure you comply with the lease terms or you may have to face the consequences.

Such is the case at the Drake Hotel, where the ground lessor is suing the ground lessee, alleging a default under the lease for, among other things, failing to provide the lessor with copies of financing and hotel management documents. All I can say is good grief. One thing I've always liked about being the ground lessor is the ability to just sit down, be quiet and collect rent. Obviously that isn't the case here, and I have seen and been involved with matters where the ground lessor raised a fuss. Here's an example of one.

Full disclosure: the lessee is represented by my good friend and former colleague, Gene Leone. Gene is quoted in Tom Corfman's story as saying, “In 26 years of practice I have seen some very silly things, this is near the top.” I have not read the lawsuit, read the lease or contacted Gene about this (setting up a golf game with him is my priority), but if Gene said what he said, I'm inclined to believe him. Why? Simply stated: Gene's earned that level of respect from me over nearly a decade. (Additional full disclosure: I have represented Walton Street Capital, L.L.C., one of the JV parties of the lessee, in the past, though not on this deal.)

By the way, I recommend Mitchell Passell's book Empire if you want to learn more about ground leases from a layman's perspective. It is a fun read involving many of the characters of New York real estate, including Donald Trump and Leona Helmsley.

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