New Jersey Real Estate Lawyer Blog

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

Tue, 31 Aug 2010 19:12:47 -0500

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.

Increase in New York Commercial Leasing May Only Signal a More Efficient Use of Office Space

Thu, 26 Aug 2010 08:15:41 -0500

Although commercial lease deals in New York and across the US are on the rise, many tenants are actually doing more with less space. In the second quarter, three out of the five biggest leasing transactions in New York City involved contracts for the same square footage or less. This is a growing trend throughout the US, as companies struggle to turn a profit and make due with fewer employees. An efficient use of office space, including open floor plans and less space per employee, is part of the overall strategy that companies are embracing to cope with the economic climate.

In the first and second quarters of 2010, leases nationwide were signed for 161.3 million square feet of commercial real estate space. This is nearly a 6% increase over the 12 months ending in March 2010. But, with companies unable to return to the staffing levels of a few years ago, the need to lease the same amount of office space has dissipated. The net result is a reallocation of the same or even less space to an almost equal number of tenants across the US.

Accounting firm Deloitte is reported to be requesting tax breaks of $11 million from New York City to help fund consolidation of its offices at 4 World Financial Center in Manhattan. The deal proposes a reduction of the company's office space from 934,000 square feet to 390,000 square feet. Deloitte intends to spend approximately $90 million to redesign the space and has left the door open for an option to expand the lease to 630,000 square feet. This type of consolidation is becoming the norm in all sectors of the US economy, from government to energy and financial services.

NYC Willets Point Redevelopment Project Inches Closer to Reality with Ruling of NY State Supreme Court Judge

Sat, 21 Aug 2010 09:34:12 -0500

On August 20, 2010, NY Supreme Court Judge Joan Madden rejected a request by a group of Willets Point business and property owners to stop the NYC Willets Point redevelopment project for environmental reasons. Approximately twelve individuals, including the area's only resident, sought an injunction to halt the project. The group's objections stated that the city's environmental review is inadequate and fails to address the project's impact on the area's water supply, local highway system and emergency response services.

The 62-acre site was originally defined as a high potential redevelopment area under the Bloomberg Administration in 2002. In 2004, the newly created Willets Point Advisory Committee outlined the specifics of the redevelopment project. Plans for the mixed-use real estate development include 5,500 units of housing, 500,000 square feet of office space, a public school, a hotel, a convention center and 1.7 million square feet of retail and entertainment amenities. An open space covering 8 acres, including parks and playgrounds, is also planned for the area and the entire development will be built using LEED-certified green construction and infrastructure.

Even without opposition in court, the New York City Economic Development Corp. faces several challenges that will need to be addressed before the Willets Point project can begin. These issues have to be resolved to ensure that future residents of the redevelopment face no environmental risks. The site was a dumping ground for ash in the early 20th century, with approximately 100 railcars of ash deposited on the site daily. More recently, the land housed industrial businesses such as auto repair shops, scrap yards and waste processing plants. All of these businesses created waste that is still present in the ground. The area's high water table, combined with the accumulated industrial waste on the site, threatens contamination of surrounding water supplies. Additionally, most of the site is located within a 100-year flood plain and will require re-grading before infrastructure construction can begin on the project.

Historic Fifth Avenue Townhouse Sold to the World's Richest Man, Carlos Slim

Thu, 05 Aug 2010 19:50:00 -0500

The lagging real estate market in NYC has not affected all investors equally. In late July, Mexican billionaire Carlos Slim paid $44 million for a townhouse in Manhattan. The price is the forth highest ever paid for a townhouse in New York. The property was purchased through Slim's real estate investment firm, Inmobiliaria Carso SA. This property rounds out Slim's holdings of other prime NYC real estate, including a Fifth Avenue office building, purchased for $140 million in June and majority ownership in Saks Inc. Saks Inc.'s valuable real estate holdings drove Slim to invest as majority shareholder in the company.

Carlos Slim's purchase of the townhouse is also notable because it is registered as a historical city landmark. Known as the Duke Semans Mansion, the eight-story home is located on the corner of Fifth Avenue and 82nd Street. Built in 1901 for Benjamin Duke, a tobacco baron, the 19,500 square foot home contains 12 bedrooms and 14 bathrooms. Slim reportedly will hold the property as a real estate investment and not as a residence.

Slim may have learned to be a savvy investor from his father, who also had a passion for real estate. An immigrant to Mexico from Lebanon, Slim's father accumulated properties in downtown Mexico City in the years following the Mexican Revolution. Slim very recently began to buy New York real estate as prices in the market started to increase. During the second quarter this year, luxury apartments in New York increased in price by 12% over the same period last year.

Subordination, Nondisturbance and Attornment Agreements: An Absolute for New York and New Jersey Commercial Tenants

Thu, 10 Jun 2010 12:04:13 -0500

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.

Simon Again Increases Bid for General Growth Properties

Tue, 04 May 2010 12:51:31 -0500

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.

New York's Premier Fifth Avenue Retail Property: Selling a Market Rebound

Tue, 27 Apr 2010 12:39:48 -0500

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.

Simon Ups the Ante for General Growth Properties

Sun, 18 Apr 2010 15:27:19 -0500

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.

New Jersey Homeowners' Foreclosure Remedies

Wed, 07 Apr 2010 16:10:50 -0500

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.

New York Commercial Real Estate Loan Forbearance Agreements

Mon, 22 Mar 2010 17:45:28 -0500

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.

New York Condo Purchaser Denied Rescission under Federal Law

Thu, 18 Mar 2010 11:23:09 -0500

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.

New York Real Estate Investor Purchases Centerline Holding

Wed, 10 Mar 2010 10:24:50 -0500

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.

New Jersey Landlord Tenant Law: Residential Lease Provisions

Mon, 01 Mar 2010 15:52:17 -0500

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

Brookfield Bids for General Growth Properties

Thu, 25 Feb 2010 13:28:40 -0500

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

Simon Unhappy with General Growth's Nondisclosure Agreement and Potential Brookfield Bid

Wed, 24 Feb 2010 14:05:10 -0500

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.