Saturday, December 29, 2007

Terror Risk Insurance Act Extended

With a week left before expiration of the Terrorism Risk Insurance Act, President Bush Signs 7 Year Terror Insurance Extension, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). The Act extends the insurance program through the end of 2014.

The availability of terrorism insurance has been crucial for financing of buildings in New York City and other high profile buildings across the country.

Wednesday, December 26, 2007

Free Speech at the Mall

The California Supreme Court upheld the rights of protesters inside a shopping mall when it handed out its opinion on Christmas Eve for the case of Fashion Valley Mall, LLC v. National Labor Relations Board and Graphic Communications International Union, Local 432-M (D.C. Cir.Ct.App. No. 04-1411, December 24, 2007). This case found permitted protesters to boycott one of the stores in the mall.

You may be familiar with the Pruneyard ruling from 1980 (Robins v. Pruneyard Shopping Center (1979) 23 Cal.3d 899, affirmed sub nomine Pruneyard Shopping Center v. Robins (1980) 447 U.S. 74). Under this case, California law permits the exercise of speech and petitioning in private shopping centers, subject to reasonable time, place, and manner rules adopted by the property owner. Essentially, the Pruneyard Court found that the shopping mall had become a public forum, replacing the streets and sidewalks of the central business district which, had been used for purposes of assembly and protest.

The Pruneyard case involved students soliciting support for their opposition to a United Nations resolution against Zionism. The Fashion Mall case involved a group urging shoppers to boycott one of the stores in the mall. The Fashion Mall owner had crafted a series of regulations and permitting for protests. However, they did not allow for boycotts: "Prohibits . . . 5.6.2. Urging, or encouraging in any manner, customers not to purchase the merchandise or services offered by any one or more of the stores or merchants in the shopping center."

Obviously this restriction on speech in the Fashion Mall's regulations is not content-neutral and therefore subject to a higher level of scrutiny. "The Mall’s rule prohibiting speech that advocates a boycott cannot withstand strict scrutiny. The Mall’s purpose to maximize the profits of its merchants is not compelling compared to the Union’s right to free expression." The Court concludes:
"A shopping mall is a public forum in which persons may reasonably exercise their right to free speech guaranteed by article I, section 2 of the California Constitution. Shopping malls may enact and enforce reasonable regulations of the time, place and manner of such free expression to assure that these activities do not interfere with the normal business operations of the mall, but they may not prohibit certain types of speech based upon its content, such as prohibiting speech that urges a boycott of one or more of the stores in the mall."

This ruling is limited to California, as the California Supreme Court pointed out that the California state Constitution provides broader rights than the United States Constitution. But many other states also consider their state constitution to provide broader free speech rights than the United States Constitution, so the effect of this ruling may be felt by shopping malls across the country.

UPDATED: added updated link to case.

Wednesday, December 19, 2007

The Mezzanine Section is the Nose Bleed Section

The Wall Street Journal has an article in the C Section by Jennifer S. Forsyth and Kemba J. Dunham on real estate mezzanine loans: Real-Estate Investors Like View From Mezzanine Section.

If mezzanine investors think that it is a "no-lose bet" they are getting themselves in trouble. There is a higher return on mezzanine debt because it is riskier.

The senior mortgage lender will often set limitations on the ability of the mezzanine lender to foreclose on the borrower and take over control of the borrower. Typically this will include the mezzanine lender stepping into the guarantees of the now-wiped out guarantors.

Since the collateral is the equity ownership, the mezzanine lender steps into all of the liabilities of the borrower. This may mean that trade debt has piled up and other obligations may be outstanding.

Lastly, the mezzanine borrower is not going to default on the loan unless they think the value is gone. Inevitably, this means the mezzanine lender is not going to be made whole if they have to foreclose and take over the borrower.

Wednesday, December 12, 2007

REIT Stocks Continue to Tumble

On Tuesday, the MSCI US REIT Index (RMZ) dropped 5.61% to 914.85, and the SNL US REIT Equity Index plummeted 5.59% to 235.96 with five winners, 106 losers and four companies closing flat. The losses mark the worst one-day tumble for the SNL US REIT Equity Index since July 25, 1989.

By comparison, the Dow Jones Industrial Average traded down 2.14% to 13,432.77, and the S&P 500 fell 2.53% to 1,477.65. The yield on the 10-year Treasury dropped to 3.97% from Monday’s
4.15% close.

The Federal Open Market Committee voted Dec. 11 to lower its target for the federal funds rate by 25 basis points to 4.25%, noting in its monetary policy statement that “incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.” In a news release, the FOMC stated that strains in financial markets have increased in recent weeks. The FOMC believes their latest action, combined with previous moves, “should help promote moderate growth over time.” The committee also decided, in a related action, to cut the discount rate by 25 basis points to 4.75%.

Monday, December 10, 2007

Webcasts from NAREIT Annual Convention

The NAREIT Annual Convention was held in Las Vegas on November 14-16. Webcasts of the presentations are available on the NAREIT website:

Gil Menna of Goodwin Procter LLP moderated the panel on the State of the Industry (MP3).

NAREIT is the National Association of Real Estate Investment Trusts.