New Jersey Real Estate Lawyer Blog

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" »

A.D. Pruitt and Lingling Wei write in their Wall Street Journal article "Dreams of Retail 'Xanadu' Meet Harsh Reality" that New Jersey Governor Christopher Christie is trying to figure out how to handle the unfinished retail center dubbed Xanadu Meadowlands ("Xanadu") by its developer, Colony Capital ("Colony"). Xanadu is a 2.3 million square foot retail complex that was slated to open in November 2008, but remains unfinished due to its inability to replace the $500 million in financing that it lost when Lehman Brothers Inc. and Capmark Financial Group Inc. declared bankruptcy. The Governor is upset that the project has not been completed; wanting the developer to either complete the project or surrender the land which it leased from the New Jersey Sports and Exposition Authority. Recently, Colony has been speaking with Related Cos. in an effort to bring them on as a financing partner.

Colony paid $160 million in advance for the first 15 years of the ground lease and is obligated to pay an additional $95 million through 2026 - a financial obligation that the Governor certainly has an interest in seeing carried out. It seems that the Governor has convened a commission to evaluate whether the New Jersey Sports and Exposition Authority, a New Jersey state agency, can make a land grab due to Colony's failure to complete construction. Escape clauses are standard in commercial ground leases which, in this case, would allow the public party to terminate the contract if the private party is not performing.

Continue reading "Xanadu: A Governor's Quest to Reclaim Northern New Jersey's Unfinished Retail Mecca" »

As explained in Charles V. Bagli's New York Times article, "In City Real Estate, Old Clans Are Shrewd Again," LeFrak, Rudin, Durst and Rose are family names synonymous with New York commercial real estate success. Commercial real estate holdings held by these families date back to the early 1900s when their families emigrated from Eastern Europe. What makes these families so different from the modern day real estate moguls who now face refinancing pressures, the prospect of foreclosure or, worse yet, personal bankruptcy is staying power. These dynastic real estate families have been around for so long due to the following factors:

• They buy and hold property with a long term view
• They will only pay their price and will not pay anything more
• They use their own equity and a conservative amount of debt rather than OPM (Other People's Money) for a majority of the purchase price
• They do not go on buying sprees, making only a few purchases during a particular business cycle
• They budget and forecast to create reserves for economic down cycles

Upon reflection, the Great Recession makes me think of one of Warren Buffet's famous investing mantras: "Be fearful when people are greedy and greedy when people are fearful." The real estate bubble made these real estate families fearful, causing them to refrain from purchasing overvalued assets. Now that the bubble has burst, those who overindulged are in trouble affording these dynastic families an opportunity to become greedy to seek out deals at valuations that make sense.

Continue reading "New York Real Estate Royalty Teaches Boom Era Operators Financial Discipline" »

The story of Tishman Speyer Properties and BlackRock Realty (the "Owners") ceding control of Peter Cooper Village and Stuyvesant Town to their lenders in early January 2010 to avoid bankruptcy is old news, but an October 2009 New York Court of Appeals (the "Court") decision, which contributed to the Owners default, will create aftershocks for years to come. Moreover, due to the Court's decision investors and developers are reshaping the way they value potential residential property investments in New York by taking into account an unresolved variable: the ability to deregulate rents.

The facts and holding of the Court are simple: Nine plaintiff-tenants of Peter Cooper Village and Stuyvesant Town, two adjoining Manhattan apartment complexes between 14th and 23rd Streets along the East River (the "Property") argued that the Owners and the prior owner, MetLife, were not permitted to deregulate rents because they were simultaneously receiving tax incentive benefits under the City of New York's J-51 program. The Court agreed with the plaintiff-tenants.

The J-51 program allows property owners who complete eligible projects (i.e. boiler replacement, asbestos abatement, etc.) to receive tax exemptions and/or abatements, which are designed to encourage building rehabilitation and improvements. Units in a building receiving these exemptions must be registered with the State Division of Housing and Community Renewal ("DHCR"); consequently such units are subject to rent stabilization during the J-51 exemption period.

The Property had been rent-stabilized since 1974, but MetLife first applied for and received J-51 benefits for the Property in 1992. It is important to understand that the Owners argued that the reason the deregulated units were subject to the rent-stabilization law in the first place had nothing to do with the J-51 benefits they were receiving.

Continue reading "Peter Cooper Village & Stuyvesant Town: Landlord Tenant Law Teaches Investors a Lesson" »

According to "Flexibility Is The Key", an article authored by Jan Alan Lewis and Iryna Lomaga Carey in the New Jersey Law Journal, the commercial leasing market seems like a tenant's market due to the impact of the Great Recession on small, mid-sized and even larger businesses. Tenants are negotiating with their landlords to receive concessions that range from rent relief in exchange for short-term renewals to tenant improvement allowances and looser assignment and subletting provisions.

Tenants have requested and received: (i) rent abatements or concessions; (ii) contraction of space and (iii) term extensions with delayed rent increases. Landlords should be wary of smaller businesses that may not be able to meet their new obligations, even if they are seemingly less stringent. Landlords should perform due diligence by requesting a business plan from their tenants before granting concessions. This way they can determine whether certain concessions will help to support the tenant's business as a going concern or whether such a concession is merely a temporary extension of a terminal problem.

Continue reading "New York & New Jersey Commercial Leasing Tactics" »

According to Russell Bershad's article, "Acquire Distressed Debt: Anatomy of a Mortgage Acquisition" in the New Jersey Law Journal, in order to protect a purchaser of distressed commercial mortgage debt, purchaser's counsel should be capable of conducting necessary due diligence, prior to the execution of a loan purchase agreement (LPA), that will review and help a client to understand the following issues:
Issue 1: The status of the loan for purchase;

Issue 2: The loan documents;

Issue 3: With regard to necessary filings: defects and perfection;

Issue 4: The borrower's and any guarantor's legal status;

Issue 5: The borrower's management and development skills, reputation and integrity;

Continue reading "Due Diligence For New Jersey Distressed Commercial Mortgage Debt: Part 3" »