Lights Out

Thanks for reading and stopping by. With the launch of my new Compliance Building blog, I have stopped blogging here.

Image by Hashc0de under Creative Commons.

Compliance Building

With my move from Goodwin Procter to be Chief Compliance Officer at a real estate company, I have been using a blog to keep my notes. I have just open up this blog to the public. You can see what I have been up to at Compliance Building.





Disclaimers

Clash of the Utopias - The Story of Stuyvesant Town

New York magazine has a lengthy story on the largest real estate deal deal in US history: The $5.4 Billion sale of MetLife's interest in the Stuyvesant Town and Peter Cooper Village residential complex. The complex is enormous: 80 acres of land on Manhattan's East Side, 25,000 residents, 110 buildings, over 11,000 units, 2,260 enclosed parking spaces, and 110,000 square feet of retail space. The complex stretches from 14th Street to 23rd Street.

The article, Clash of the Utopias by Gabriel Sherman, starts with the history of the complex. It was an ambitious post-war slum reclamation project. It was intended as middle class oasis in the expensive heart of the city. The vast majority of units are rent-stabilized.

The purchase price was high. According to the story, the rent flow from the property was less than the debt payments. The new owners would need to kick-out illegal rent-stabilized tenants. They would need to raise rents.

Since the time of the acquisition, the real estate market has changed. The story points out that they had to decrease rents and offer incentives to get vacant units rented.

I believe most of the key people and investors in the transaction knew this was a long term deal that would not result in a quick flip for cash. A complex this big does not move quickly. But, it is hard to resist a tract of land this big in the middle of Manhattan. There were lots of bidders who wanted the project.

The story spends a big chunk of space talking about the Speyer family and their family business.

The comments to the story are biting and largely critical of the new owners and their stewardship of the complex.

[For full disclosure, my former firm represented parties in the transaction and played a significant role in the acquisition, financing and other items mentioned in the story. I had no active role. BlackRock/Tishman Acquires Stuyvesant Town and Peter Cooper Village for $5.4 Billion. Deal of the Year. Fund Formation of the year.]

Disclaimers

REITs May Pay Dividends in Stock to Save Cash

In a Bloomberg story By Hui-yong Yu, REITs in U.S. Consider Paying Dividends in Stock to Save Cash, many publicly traded REITs may take advantage of a IRS ruling allowing them to pay dividends instead of cash.

On December 10, 2008 the Internal Revenue Service issued Revenue Procedure 2008-68 announcing that the IRS will treat a cash option stock dividend as satisfying a public REIT’s distribution requirements for 2008 and 2009 so long as shareholders can elect to take at least 10% of the dividend in cash.

According to a REIT Alert from Goodwin Procter, IRS Issues Guidance on Taxable Stock Dividends:

The Revenue Procedure provides that the IRS will treat a capped cash option stock dividend by a REIT as a taxable dividend, and will consider the amount of stock distributed to be equal to the amount of cash which could have been received instead, if:

• the dividend is made by the REIT to its shareholders with respect to its stock;
• the terms of the dividend allow each shareholder the right to elect to receive its entire distribution in either cash or stock of the REIT of equivalent value, provided that the REIT may impose a limitation on the amount of cash to be distributed in the aggregate to all shareholders of not less than 10% of the aggregate distribution; and
• the number of shares to be distributed is determined as close as practicable to the payment date based upon a formula utilizing market prices.

Disclaimers

Tenant-in-Common Interests are Securities

On January 14, the SEC issued a no-action letter to OMNI Brokerage, Inc., Argus Realty Investors, L.P., and PASSCO Companies, LLC regarding their tenant in common interest program. The SEC said no to the "no action."

"Based on the facts presented, the Division disagrees with your view that the proposed offer and sale of undivided tenant in common interests pursuant to the Master Lease Transactions and Property Management Transactions (each as defined in your letter) do not involve securities within the meaning of Section 2(a)(1) of the Securities Act of 1933. As a result, the Division is unable to assure you that it would not recommend enforcement action to the Commission unless such offers and sales are registered under the Securities Act or exempt from registration."

TIC sponsors will need to revisit their platform if they have not been treating their TIC interests like securities. In an article in National Real Estate Investor, Beth Mattson-Teig points out that the no-action letter is limited to the specific facts presented in the request for confirmation: SEC Confirms TICs as Securities.

• SEC No Action Letter to Omni
• Omni Letter Request for Confirmation (.pdf) submitted in 2006

Disclaimers

Health Care REIT, Inc. Added to S&P 500

Standard & Poor's announced that Health Care REIT Inc. (NYSE:HCN) will replace Sovereign Bancorp Inc.(NYSE:SOV) in the S&P 500. Standard & Poor’s Announces Changes to U.S. Indices [.pdf] Sovereign is being acquired by Banco Santander SA, leaving a vacancy in the index.

Health Care REIT, Inc. is an equity real estate investment trust that invests across the full spectrum of senior housing and health care real estate, including independent living/continuing care retirement communities, assisted living facilities, skilled nursing facilities, hospitals, long-term acute care hospitals and medical office buildings.

Disclaimers

Government Seizes 650 Park Avenue

According to the Wall Street Journal, the United States Attorney for the Southern District of New York has filed a forfeiture proceeding against 650 Fifth Avenue in New York.

In its press release: United States files civil forfeiture action against ASSA corporation's interest in Manhattan office tower (.pdf), the DOJ claims that a 40% interest in the building is held by the ASSA Corporation which is acting as a front for Bank Melli. The Government of Iran controls Bank Melli and ownership is considered an export under the Iraninan Transaction Regulations (Title 31 CFR, part 560)


Disclaimers

Stealing the Empire State Building

The New York Daily News tried to show that it is easy to "steal" property by filing fake deeds. The story is rather foolish, but if you want to read it: It took 90 minutes for Daily News to 'steal' the Empire State Building.

The reporters think that by filing a forged deed, they somehow could control the building and get a mortgage. Sure it is possible to try to steal money by going through this exercise. Of course you are just leaving a paper trail that makes it easy to figure out what happened and get caught. I could also jump into a car and drive off. That is stealing too.

What is wrong with the story? The property manager is unlikely to turn over the bank accounts to some unknown person just because they have a deed. Tenants are unlikely to redirect rent payments without more evidence of a transfer. A mortgage lender is not going to turn over loan proceeds based on mere deed. One reason to insert lawyers into the real estate conveyance process is to prevent scams like this.

Mortgage lenders demand lots of documentation because they try to avoid scams like this. Mortgage lenders get title insurance to protect against fraud and scams.

It was a stunt and created an interesting headline. However, someone is likely to pay a fine or go to jail for it. I am not a New York lawyer but I would guess that there is a law against filing fake documents.

Disclaimers
Image is by David Shankbone from Wikimedia Commons

Tenant Allowance and Build-Out Obligations When a Tenant Files for Bankruptcy

Sutherland published a timely legal alert on what a landlord can do with a tenant allowance and tenant build-out obligations when a tenant goes bankrupt: Obtaining Relief From Tenant Allowance and Build-Out Obligations When a Tenant Files for Bankruptcy.

The alert points out that lease provisions that allow the landlord to stop completion or funding upon the tenant filing bankruptcy are largely unenforceable as ipso facto provisions under section 365(e).

The alert notes two cases which came down with different results on tenant accommodations.

In re Postle Enterprises, Inc., 48 B.R. 721, 724 (Bankr. D. Ariz. 1985) found an improvement allowance to be a financial accommodation under 11 U.S.C. § 365(c)(2),(e)(2)(B). Therefore allowing the landlord to limit its exposure.

In re United Press International, Inc., 55 B.R. 63, 66 (Bankr. D. D.C. 1985), that court found a landlord’s build-out of a tenant’s premises to a tenant’s specifications did not rise above “an ordinary lease” and as such was not a financial accommodation.

Thanks to James B. Jordan, David J. Rabinowitz and Garland L. Reid of Sutherland for putting together an alert on a topic that is on the mind of landlords.

Disclaimers

Not Not Creating a Title Insurance Behemoth

The off and on combination of Land America Financial Group with Fidelity National Title Title is back again. LandAmerica press release: LandAmerica Signs Stock Purchase Agreement for Underwriters.

The two signed a merger, then Fidelity terminated, now they restructured the transaction again. This time, Fidelity is purchasing the Lawyers Title and Commonwealth Land Title subsidiaries.

The parent holding company and its 1031 exchange company are filing for bankruptcy. That sounds like bad news for anyone with cash sitting in a LandAmerica 1031 account. It turns out that the company had $290 million invested in auction rate securities as part of the its 1031 business.[Fitch Downgrades LandAmerica's IFS to 'BB'; on Watch Negative] Perhaps that is what Fidelity saw during its diligence and decided to cancel the original deal.

That means Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation will combine with Fidelity National Title, Chicago Title, Ticor Title, Security Union Title and Alamo Title.

Its unclear how the transactions will impact employees and agents of LandAmerica, Lawyers Title and Commonwealth Title. David Stejkowski of the The Dirt Lawyer's Blog thinks it will be good for agents to "have the backing of the 800 pound gorilla in writing policies."

The combined company will have almost half of the real estate title insurance market, based on the Demotech Performance of Title Insurance Companies 2008 Edition.

See my prior posts:

• Not Creating a Title Insurance Behemoth
• Creating a Title Insurance Behemoth
  

Disclaimers