In the real estate business, when plans don't work out like expected and various parties of the first part are involved with various parties of the second part you know that lawyers will be getting in on the action. The tangled webs of mortgage securitizations and credit default swaps whipsaw some investors who may be overleveraged in lagging markets. Developers and their lenders start to get more nervous as buildings come out of the ground and leasing falls short of projections. Money partners start to grumble. Project meetings turn more serious and reflective: Tight looks and folded arms replace backslapping bonhommie.
During the last commercial real estate downturn, the circa 1990 market implosion, it was quite amazing to see business "friendships" torn abruptly asunder over various contract covenants, albeit exposure in some cases to tens of millions of dollars or more. Suddenly John or Jimmy or Tex "my good friend and business visionary partner" turned into "that s.o.b. who we "should sue into the ground." In the mid-1990s aftermath, the wisdom floated among institutional investors was to avoid joint ventures with developers, "who were only in it for themselves."
Well, time helps people forget and changes the players. In the most recent cycle, joint ventures were called operating partnerships to make everyone feel better and money partners made sure that developers had "substantial skin the game" to align interests. But as everybody leveraged up to the hilt, substantial became less substantial even for the institutions. And the money partners--Wall Street bankers not insurance companies--were using other people's money in the transactions while taking out plenty of fees along the way.
The current slowdown probably won't result in the level of acrimony and bad blood leftover from the early 1990s period. But ill-feelings and bareknuckles will be more in evidence over the next 12 to 18 months. Where money is at stake, friendship can be fleeting. Let's watch to see how much backroom workout infighting devolves into actual in your face, headline-making litigation. Expect at least some.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
