New Jersey Real Estate Lawyer Blog

Earlier this month, a foreclosure auction of the New York Stuyvesant Town-Peter Cooper Village property was postponed after a judge ruled in favor of an objection by special servicer CWCapital Asset Management. Pershing Square Capital Management LP and Winthrop Realty Trust had scheduled the auction for August 25 after the group purchased $300 million of mezzanine debt on the complex. CWCapital, representing the senior lenders, had its own plan to foreclose on the property in September and is arguing that $3.66 billion would have to be paid by Pershing and Winthrop to senior lenders before they could take control of the complex.

The future of Manhattan's largest residential complex has been in a state of flux for several years. The post-war development has more than 11,000 apartments in 56 buildings and sits on approximately 80 acres. Over 25,000 residents live in the complex. MetLife sold the property to Tishman Speyer Properties LP and BlackRock Inc. in 2006 for $5.4 billion, in one of the biggest commercial real estate transactions in New York history. Purchasing at the height of the market, the new owners have suffered the effects of the economic downturn. They defaulted on the senior mortgage of $3 billion in January when rent increases were unable to keep up with the drop in property values.

Ongoing lawsuits over rent-stabilization are further clouding the development's future. In 2009, previous and current owners of the Manhattan real estate development were found by the New York Supreme Court to have deregulated units improperly. The owners had received tax breaks associated with the rent-stabilization program. This issue is not yet resolved and it is unlikely that the development can be sold before this question is finalized. Potentially, any future owner could be responsible for rent repayment to tenants of around $200 million.

Continue reading "Legal Battles Threaten the Hopes of NY Co-op Ownership for Stuyvesant Town-Peter Cooper Village Residents" »

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" »

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" »

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" »

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" »

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" »

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" »

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" »

According to Russell Bershad's article, "Acquire Distressed Debt: Anatomy of a Mortgage Acquisition" in the New Jersey Law Journal, loan purchase agreements (LPA) are not drafted in a standard form, yet they mostly contain or should contain the same provisions. Purchaser's counsel should be aware of certain issues while drafting or reviewing an LPA, such as:

Issue 1: Accounting for borrower funds being held by the seller, such as taxes, insurance, and repairs.

Issue 2: Creating a provision to prevent the seller from taking an action that would adversely affect the debt amount, such a settlement with the borrower.

Issue 3: Drafting seller representations related to:

(a) The amount due on the loan;

(b) The seller's loan ownership to insure that it is freely marketable;

(c) Non-conveyance of an interest in the loan to a third party;

(d) No litigation pending related to the loan or the underlying real estate or if pending litigation exists, the status of such litigation;

(e) No offsets, counterclaims or defenses to payment of the loan asserted by borrower;

(f) The material loan documents;

(g) The loan title insurance policy and certification that it is in effect for its full amount;

(h) The solvency or bankruptcy of the seller;

(i) Preventing the seller from entering into a forbearance, settlement, release or similar agreement with the borrower or any guarantor prior to closing.

Continue reading "Loan Purchase Agreements For New Jersey Distressed Commercial Mortgage Debt: Part 2" »

According to Russell Bershad's article, "Acquire Distressed Debt: Anatomy of a Mortgage Acquisition" in the New Jersey Law Journal, commercial real estate investors who have been waiting on the sidelines for the commercial real estate crash should take note of the legal steps and timing required in the acquisition of distressed mortgage debt. All we read about today is the residential real estate bust that has been occurring for the previous twelve to eighteen months. It is not a question of if, but when will commercial lenders start divesting themselves of their distressed commercial mortgage debt. Many believe that the flood gates are about to open due to the large amount of commercial mortgage debt coming due in 2010 through 2012 and the inability of many borrowers to refinance. The acquisition process for commercial mortgage debt purchasers is straight forward yet complicated due to the distressed nature of the asset being purchased. The steps in such an acquisition are usually as follows:

Step 1: Lenders make it known that they are willing to dispose of certain commercial mortgage debt.

Step 2: Potential purchasers who indicate interest will more than likely be required to sign a confidentiality agreement in order to review the loan files and to speak with lender's counsel.

Step 3: Lenders may select to sell to one particular purchaser or place their debt up for auction as a means to obtain the highest bid. Bidding may take place in one round or a series of rounds.

Step 4: The successful bidder will be required to sign what is usually a non-binding letter of intent (LOI). This LOI often times requires a refundable deposit to be escrowed by the bidder with a third party. The successful bidder should require the LOI to be binding on the seller so that the seller is prevented from marketing the loan to others while the deal with the successful bidder is ongoing.

Continue reading "New Jersey Distressed Commercial Mortgage Debt Acquisitions Procedure: Part 1" »