New Jersey Real Estate Lawyer Blog

Iryna Lomaga Carey and Allison Lissner provide an excellent checklist for tenants in their New Jersey Law Journal article "Subordination, Nondisturbance and Attornment Agreements: A Minimum Standard Tenant Checklist." Subordination, Nondisturbance and Attornment Agreements ("SNDA") should be the rule and not the exception for commercial tenants expending significant amounts of money and time on their leasehold improvements.

SNDAs are negotiated between lenders and ground lessors of commercial property to prevent their lease from terminating after a default by the landlord on its mortgage. Without a SNDA, after a default lenders can elect which tenants it wants to keep or replace without giving any consideration to the leases previously executed by the defaulting landlord and tenant.

Continue reading "Subordination, Nondisturbance and Attornment Agreements: An Absolute for New York and New Jersey Commercial Tenants" »

In our post "Simon Ups the Ante for General Growth Properties" we wrote about Simon Properties ("Simon") modifying its initial takeover bid for General Growth Properties ("GGP") by using a similar model to Brookfield Asset Management ("Brookfield"). Instead of attempting to merge two of the country's largest mall owners, Simon offered $6.5 billion, which included a $1 billion commitment from hedge fund Paulson & Co., to finance GGP's exit from bankruptcy as a standalone entity. In the Wall Street Journal's article "General Growth to Consider Buyout Bid From Mall Rival," Simon has once again restructured its bid to make it a more attractive option for GGP and its stakeholders.

Continue reading "Simon Again Increases Bid for General Growth Properties" »

Considered to be a bottom of the market deal, in July of 2008 the first two floors of 666 Fifth Avenue sold for $525 million to private equity firm Carlyle and Crown Acquisitions ("Crown"), as reported in the Wall Street Journal's article "Fifth Avenue Gem Is Back on Block." Carlyle and Crown have added value by buying out existing tenants with below market leases and re-leasing at higher market rents. Currently, 666 Fifth Avenue has an average rent of $2,500 per square foot.

Carlyle and Crown are now seeking to sell the first two floors for a price of between $600 million and $700 million. This will test New York City's decimated commercial real estate market. If they are able to obtain a 14% to 33% markup on their investment, the sale will signal that New York's commercial real estate market is on the rebound. It would also add between $18 million and $21 million to the city's coffers due to the 3% transfer tax.

Continue reading "New York's Premier Fifth Avenue Retail Property: Selling a Market Rebound" »

In our post "Brookfield Bids for General Growth Properties" we wrote about Brookfield Asset Management's ("Brookfield") $15 per share bid for General Growth Properties ("GGP"). In last week's Wall Street Journal Article "Simon Remakes Offer for Rival" it was reported that Simon Properties ("Simon") modified its initial takeover bid for GGP by using a similar model to Brookfield. Instead of attempting to merge two of the country's largest mall owners, Simon has decided to offer $6.5 billion, which includes a $1 billion commitment from hedge fund Paulson & Co., to finance GGP's exit from bankruptcy as a standalone entity. If Simon's bid is accepted, it would become one of GGP's largest shareholders. The revised deal structure is due to GGP's antitrust concerns over combining two of the largest domestic mall operators.

Continue reading "Simon Ups the Ante for General Growth Properties" »

Glenn Reiser writes, in his New Jersey Law Journal article "The Rights and Remedies Available to A Distressed New Jersey Homeowner," about a scenario in which a lender forecloses on a homeowner's property due to a default, but the sheriff's sale is halted while the homeowner files for a loan modification with his lender. Unfortunately, there is no communication between the lender, which includes the lender's loan servicing company and the attorney prosecuting the foreclosure action, and the borrower. The borrower's application for the loan modification is eventually declined, but the lender and its agents neglect to send the borrower actual notice of the adjourned sheriff's sale. What rights and remedies may the borrower employ if his property is purchased by a third party at the adjourned sheriff's sale?

New Jersey Court Rule 4:65-2 requires that (i) the party obtaining the order for the sale must serve the owner of the property with notice of the sale at least 10 days in advance of the sale by registered or certified mail, return receipt requested and (ii) notice of a sheriff's sale be posted by the sheriff in the sheriff's office and also on the property being sold. In addition New Jersey Court Rule 4:65-4, which deals with adjourned sales, provides "the sheriff, receiver or other person may continue such sale by public adjournment, subject to such limitations and restrictions as are provided specially therefor." One may infer from "public adjournment" that notice of the adjourned sale be given to interested parties.

Continue reading "New Jersey Homeowners' Foreclosure Remedies " »

Richard S. Fries and Todd B. Marcus present the key concepts and provisions that should be included in effective commercial real estate loan forbearance agreements in their New York Law Journal article "A Primer on Today's Commercial Loan Forbearance Agreement."

First and foremost, a pre-workout agreement is required prior to the actual commercial loan workout, because this agreement establishes the rules and certain protections for the lender such as that (i) no communications between the parties will constitute an agreement by the lender, or a waiver, forbearance or estoppels, by the lender, of any of its rights and remedies and (ii) no negotiations will be binding on either party until the parties memorialize their agreement in writing.

Second, the purpose of a forbearance agreement is to grant the borrower legal/economic concessions in exchange for increased collateral and the right to invoke its remedies. Certain concessions and enhancements must be negotiated by the parties.
Lender's concessions may include some of the following:

Concession #1: Forbearance from accelerating the loan and pursuing foreclosure and other remedies;

Concession #2: Extension of maturity date;

Concession #3: Economic or covenant default waivers;

Concession #4: Suspension of required principal amortization and interest installment payments and

Concession #5: Partial release of real estate collateral or agreement to accept release prices.

Continue reading "New York Commercial Real Estate Loan Forbearance Agreements" »

Last month in "New Construction Contract Termination: New Yorkers Use a Federal Law to Escape," I wrote about how creative practitioners are seeking ways to help their clients break new construction contracts by using the (the "Act") as a weapon. Mark Fass explains in his New York Law Journal article "Buyers' Bid to Rescind Condo Purchases Under Land Sales Law Fails" that this argument failed in the case of Romero v. Border East River Realty LLC ("Romero").

This is one of the first cases to address the issue of whether buyers can use the requirements of the Act against developers to rescind contracts. The Act requires developers to register subdivisions of 100 or more lots with the Secretary of Housing and Urban Development ("HUD") and to deliver a disclosure document, called a property report, to each purchaser prior to executing the purchase agreement. In Romero the developers did not satisfy either obligation. However, the court found that two of the Act's exceptions combined exempted the developers from the registration and disclosure requirement.

Continue reading "New York Condo Purchaser Denied Rescission under Federal Law" »

The Wall Street Journal reported in its article "Farkas Scoops Up Centerline Holding" that Andrew Farkas's Island Capital Group ("Farkas") has purchased Centerline Holding Co. ("Centerline"). Farkas recapitalized the company with $100 million in new equity while also assuming $180 million in debt; preventing Centerline from falling into bankruptcy. Centerline is one of the largest commercial-mortgage servicing specialists.

Farkas purchased the Centerline unit which specializes in restructuring poorly performing mortgages that were previously packaged into bonds. This particular unit is a designated special servicer for about $110 billion of loans that were bundled into commercial-mortgage backed securities or CMBS. A special servicer decides whether to modify loan terms or foreclose on property once a loan goes into default.

Continue reading "New York Real Estate Investor Purchases Centerline Holding" »

When working to remedy a problem between a landlord and a tenant the first question that one should ask is whether a written lease exists between the parties. The absence of a written lease does not mean that a tenancy does not exist. If one lives on someone else's property and the parties exchange funds, there most likely is a landlord-tenant agreement. Written leases must comply with New Jersey's Plain Language Law (N.J.S.A. 56:12-1), which requires that the language be simple and understandable. However, if a written lease exists it should contain the following provisions:

Provision #1: Term and Rental - reservation of the rent should be made by stating the amount due for the year and the amount for each monthly installment

Provision #2: Sublet Clause - negotiation should be undertaken to require that the landlord accept any reasonable sublessee

Provision #3: Pet Clause - a provision should be made to allow a tenant to keep a pet or the landlord to exclude said pet

Provision #4: Late Charge - a reasonable late charge should be negotiated to protect the landlord

Provision #5: Attorney's Fees - a provision should be made for reasonable attorney's fees to be paid to the prevailing party should a dispute arise between said parties

Provision #6: Rent Due Date - this provision can be combined with Provision #1, but if not then a date certain should be set for when rent is due

Continue reading "New Jersey Landlord Tenant Law: Residential Lease Provisions" »

Last week, Simon Properties Group Inc. ("Simon") made an unsolicited $10 billion bid to acquire General Growth Properties Inc. ("GGP") which equates to $9 per share. As reported in the Wall Street Journal's article "General Growth Plans Split-Up," it seems that Canadian real estate firm Brookfield Asset Management ("Brookfield") has made a bid for GGP. Brookfield's bid values GGP at $15 per share.

GGP plans to split itself into two entities upon emerging from bankruptcy by using financing provided by Brookfield. The plan was outlined as follows:

GGP Larger Entity

- The larger entity will (i) retain the General Growth Properties name and (ii) hold approximately 180 of GGP's 200 malls ("General Growth Properties")

- Brookfield has pledged to purchase 30% of General Growth Properties for $10 per share or roughly $2.5 billion

- General Growth Properties will remain encumbered with roughly $19 billion of mortgages

GGP Smaller Entity

- The smaller entity will (i) have the name General Growth Opportunities and (ii) hold GGP's less-valuable malls including 13 malls it intended to forfeit to lenders and the South Street Seaport mall in New York ("GGO")

- Brookfield will receive 7% of GGO after pledging $125 million or half of the $250 million that GGO plans to raise by selling shares at $5 a piece

- GGO will remain encumbered with roughly $1.2 billion of mortgages

Continue reading "Brookfield Bids for General Growth Properties" »

Last week, Simon Properties Group Inc. ("Simon") made an unsolicited $10 billion bid to acquire General Growth Properties Inc. ("GGP") which equates to $9 per share. This bid values GGP's equity at $3 billion while setting aside $7 billion to pay off unsecured creditor debt. It seems that Canadian real estate firm Brookfield Asset Management ("Brookfield") is getting ready to make a bid for GGP. As reported in the Wall Street Journal's article "Brookfield to Battle Simon for Mall Giant," Brookfield seems poised to make a bid to become GGP's largest shareholder while allowing GGP to exit bankruptcy as a standalone company.

It seems that Brookfield's bid may value GGP's equity at $3 billion just like Simon's, but would require that unsecured creditors accept equity in GGP along with a little cash. Brookfield has also lined up a consortium of investors to purchase GGP equity upon its emergence from bankruptcy. It is not clear whether the bankruptcy judge will allow Brookfield's plan since it does not repay unsecured creditors 100% of par value, as Simon's offer does. However, since Brookfield holds roughly $1 billion worth of unsecured debt it may be in a position to convince other unsecured creditors to take equity in the new GGP and a smaller amount of cash thereby helping to get Brookfield's plan confirmed.

Continue reading "Simon Unhappy with General Growth's Nondisclosure Agreement and Potential Brookfield Bid" »

Creative practitioners are seeking ways in this upside down economy to help their clients break contracts without incurring substantial costs and more importantly, to avoid claims for breach of contract. Allison Lissner and Tara Duggan Ryan explain in their New York Law Journal article "Buyers Rely on 1968 Federal Law to Terminate Contracts" that lawyers are making use of the Interstate Land Sales Full Disclosure Act of 1968 (15 U.S.C. §1701, et seq.) (the "Act") to get out of new construction contracts.

The Act was created to protect buyers purchasing land in another state that was advertised as an incredible development opportunity. Unfortunately, back then purchasers would not visit the property until after closing and would find that they purchased swamp land or something else as equally worthless. The Act requires developers to register subdivisions of 100 or more lots with the Secretary of Housing and Urban Development ("HUD") and to deliver a disclosure document, called a property report, to each purchaser prior to executing the purchase agreement. There are certain exemptions contained in Section 1702 of the Act such as, if under a contract of sale a developer obligates itself to complete construction within two years, then the contract is exempt from the requirements of the Act. However, most developers do not make these kinds of promises.

Continue reading "New Construction Contract Termination: New Yorkers Use a Federal Law to Escape " »

Simon Properties Group Inc. ("Simon") made an unsolicited $10 billion bid to acquire General Growth Properties Inc. ("GGP") which equates to $9 per share. GGP is working to emerge from bankruptcy, so any deal would have to be approved by the bankruptcy judge overseeing the case and GGP's board. What is noteworthy is that if Simon's bid is successful it would own roughly 550 malls or one-third of the U.S. market. As noted in The Wall Street Journal's article "Mall Giant Simon Properties Bids for Rival General Growth," Simon would control half of the country's best performing enclosed malls according to total sales.

This type of control may create antitrust concerns. With this type of control Simon would be in a very strong position to dictate leasing terms to national tenants seeking space in Simon's prime locations. Simon might even be in a position to leverage its control to require tenants who want space in prime locations to take space in its less desirable locations. However, others argue that there will not be antitrust issues because the retail real estate market is comprised of more than just enclosed malls. Antitrust experts argue that this type of analysis must also account for open-air shopping centers, big box stores and online retailing.

Continue reading "Simon Properties Bids for General Growth Properties" »

"Let's make a Deal" is the name of the game for Manhattan tenants looking to renew leases, renegotiate leases or lease for the first time commercial space in the city, according to Bradley A. Kaufman's New York Law Journal article, "Projecting Leasing Trends for 2010." This is an opportune time for tenants to take advantage of a de-stabilized market by asking for more favorable terms. Real estate experts believe that leasing for 2009 is a very good indicator of the 2010 leasing landscape. In 2009, with unemployment and vacancy rates escalating in New York City, rental rates decreased and landlord concession packages increased.

Average asking rents in 2009 plummeted from $81.71 per rentable square foot to $56.89 per rentable square foot in Midtown (registering a 30% decline). In some cases, higher end buildings saw a decline of up to 50%. Retailers such as banks and large national retail chains ended their leasing dominance due to increased vacancies and decreased leasing velocity.

Subleasing became an important tool to shedding vacant space. Landlords and sub-landlords offered incentive packages to attract or retain tenants. Consequently, net effective rents on completed transactions fell as much as 45%. One of the growth markets in New York City is the office suites market with companies such as "NYC Office Suites" entering into long subleases for larger blocks of space. Companies like these take these blocks and break them up into smaller individual offices and meeting spaces to lease more flexibly to smaller users.

Continue reading "Manhattan Commercial Leasing: 2009 Indicates 2010 Outlook" »

David C. Djaha and Laurie C. Nelson highlight in their New York Law Journal article "Savvy Investing in Distressed Properties," that distressed property investors should be made aware of certain due diligence issues. These are interesting points because given today's economic environment distressed property investors are making two different types of plays: (i) purchasing the distressed real estate outright or (ii) purchasing the loan on the distressed real estate (the "loan to own" scenario).

General issues that investors should consider are as follows:

Issue #1: Review whether the seller is insolvent or about to file for bankruptcy

Issue #2: If the seller is insolvent, seller's representations are not worth very much

Issue #3: Review all leases to determine to which services the tenants are entitled

Issue #4: Provide in the purchase and sale agreement a closing condition requiring the receipt of tenant estoppel certificates from all property tenants

Reason: To ensure that the purchaser is aware of (i) all current tenants; (ii) current rent; (iii) deposits, security and prepaid rent paid by each tenant and (iv) the amount of square footage to which each tenant is entitled

Issue #5: If certain tenants do not execute a tenant estoppel certificate the purchaser should request that a certain amount of the purchase price be escrowed for a period of time after closing

Reason: To allow for the purchaser to identify any pre-existing tenant claims

Issue #6: If certain tenant estoppel certificates cannot be obtained the purchaser should request an assignment and assumption of leases specifying the security deposits and prepaid rents being assumed by the purchaser

Reason: This will help defend the purchaser against future tenant claims if such funds were not transferred by the seller to the purchaser at closing

Continue reading "New York Distressed Property Purchasers: The Necessity of Proactive Due Diligence" »