Lawfirm Launches Interdisciplinary Team To Assist Owners With Commercial Real Estate Debt Issues

Atlanta (November 13, 2008) – The credit crisis that is dramatically affecting the commercial real estate industry is the impetus for a new practice group at Morris, Manning & Martin, LLP. The Atlanta-based law firm is launching a new Commercial Real Estate Debt Management Practice, offering legal support and practical business advice to real estate owners.

“Refinancing simply may not be available to replace mortgage loans as they mature,” says MMM Partner Nick Sears, who heads the new group. “Moreover, if the economy continues to degenerate, borrowers may not be able to derive sufficient cash flow from their properties to make regular monthly debt service payments,” he adds.

“Our team is particularly well-situated to assist commercial real estate developers and owners with managing their relationship with lenders, as well as the lenders’ loan servicers, in restructuring mortgage and mezzanine loans, identifying tax issues and resolving joint venture partnership disputes,” Mr. Sears says. “For example, we can advise borrowers on how to operate their properties to avoid the ‘recourse’ pitfalls in conduit loan documentation which could result in personal liability of the ‘carveout’ guarantors,” he adds.

Over the last 10 to 15 years, Mr. Sears explains, in many commercial real estate loans the lender agrees to limit its collection efforts to foreclosing on the real estate collateral except for certain “carve out” exceptions; when these exceptions occur, the lender may then pursue collection of the debt from any assets of the borrower and individual guarantors. Examples of “carve out” exceptions to the “nonrecourse” nature of loans are:

• Actions of the borrower which result in a decline in the value of the collateral.
• Sale of the collateral without the lender’s permission or the borrower’s voluntary bankruptcy.

“The firm can also help members of the real estate industry look ahead and take advantage of new opportunities afforded by the economic crisis,” he adds. The firm’s interdisciplinary team includes lawyers skilled in banking, real estate, litigation, bankruptcy and tax issues. Mr. Sears has considerable experience with real estate development and finance law. Others in the new practice include Tom Gryboski, a Partner in the firm’s Real Estate Group, and Simon Malko, a Partner in the Litigation Group.

Source: http://www.mmmlaw.com/pressreleases/press_403.pdf

Reuters Reports That Deflation Is Starting To Take Hold. Is It True?

A Reuters analysis article yesterday casually reported that “Inflation-indexed bonds…are taking [a] beating as deflation starts to take hold.” Is it true that deflation is starting to take hold? We cannot doubt there have been three consecutive months of deflation. The economy seems far more challenged today than I have ever seen it. But is deflation starting to take hold?

We know that as of November 2008, we have now had deflation for 3 consecutive months and this is the tenth multi-month period of deflation in the past 60 years.

Is deflation starting to take hold? The data over the past 60 years simply does not support that conclusion. It may turn out to be true that deflation is taking hold. But we don’t know that today and until it is a fact, it is not real, it is not true and it is a mis-characterization of the facts.

Only time will tell if deflation is starting to take hold, and by then, it will be history. Life happens only in this very moment. We have to make decisions here and now. We can never decide or act in the past or the future because history and future are not alive. We cannot really know what we now face until it has become history. That’s the blessing and challenge of life.

Is this just some new age philosophical nonsense? I think not.

If you are like me, the statement that deflation is starting to take hold produces an entirely different reaction or thought pattern than the statement, “our past three deflationary months has only been seen nine previous times in the past 60 years.” This subtle distinction would result in a completely different set of decisions and actions.

In a volatile period, it is essential that we see what is real and not allow our thought process to distort our view of reality. Otherwise our decisions and actions will be distorted vis-a-vis reality. No one wants that for themselves. Clear seeing is the solution.

Note: The Reuters article has already been repeated on several news websites: CNBC, Forbes, USA Today, ForexPros. Repetition does not make it any more true.

Are We Experiencing Deflation?

I have been misinformed all my adult life. I have believed that our last deflationary period in the US was in the Great Depression of the 1930s. Not so.

I’ve been surprised by the increasingly common use in the press of the “D” word: deflation. It seems to roll off the tongues as smooth as honey.

Yet, all of my working life, deflation has been a topic that no one seems to broach. Mild inflation was OK. Inflation was survivable. But for deflation, “let’s not go there” has been the rule of polite conversation. Analogizing it to the childhood fear of the monster in the closet is not an overstatement.

But recently, its use seems to have become common. When I saw another casual reference to it today, I decided to look at the data.

I reviewed the seasonally adjusted CPI-U published by the U.S. Bureau of Labor Statistics. The CPI-U is a measure of the average change over time in the prices paid by all urban consumers for a market basket of consumer goods and services. The available data made it easy to look back over the last 60 years on a monthly basis.

• Between November 1948 and January 1950, a 14 month period, consumer prices decreased in 9 of the months and no change in 2 of the months.

• In each of mid-1951 and early-1952, we had three consecutive months of consumer price decreases.

• In 1954, 7 of the last 10 months were deflationary and in 1955-56, 7 of 13 months had consumer price decreases. In 1958-59, a 10 month period brought 5 months of consumer price decreases.

• Until 1986, there were no significant periods of consumer price decreases, just a month or two here and there. But in 1986, we had three consecutive months of consumer price decreases.

• 2001 brought 4 months of consumer price decreases in 6 months. 2003 brought 3 consumer price decreases months. 2005-2006 had 3 consumer price decreases months in 4.

• As of November 2008, we have now had consumer price decreases for 3 consecutive months.

What is “deflation”? Webster’s dictionary defines it as “a contraction in the volume of available money or credit that results in a general decline in prices.” We have had both a general decline in prices and a contraction in the volume of available credit.

As of November 2008, we have now had deflation for 3 consecutive months. This is the tenth multi-month period of deflation in the past 60 years.

I guess it’s no longer impolite to discuss deflation in polite company.