Doug Cornelius .com

Fidelity National Financial, Inc. (NYSE: FNF – News) canceled its plans to acquire LandAmerica Financial Group, Inc. (NYSE: LFG – News) . The combination would have created a behemoth that controlled almost half of the title insurance market.

Under the agreement, Fidelity National had discretion to terminate the merger on or before Nov. 21 under its contractual due diligence termination right. Fidelity exercised that termination.

LFG’s stock price plunged over 80% today on that news. On Nov. 10, LandAmerica reported in its third-quarter results that it was no longer in compliance with financial debt covenants and hadn’t yet obtained waivers, putting into a growing list of companies with “growing concern doubts.”

See also:

• Busted Deal Slams LandAmerica – Wall Street Journal
• So Much For That Merger – David Stejkowski of The Dirt Lawyer’s Blog
• LandAmerica Moves Forward – LandAmerica Investor Relations

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The Real Estate and Real Estate Capital Markets Group at Goodwin Procter put together A Look at Commercial Real Estate Debt: Where We Are Now and Where We May Be Going.

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Fidelity National Financial, Inc. (NYSE: FNF – News) and LandAmerica Financial Group, Inc. (NYSE: LFG – News) today announced the signing of a definitive merger agreement under which FNF will acquire LFG. [Press Release]

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.

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.

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On September 26, 2002, Financial Crimes Enforcement Network issued a notice of proposed rulemaking, proposing to require unregistered investment companies to establish and implement anti-money laundering programs. (Anti-Money Laundering Programs for Unregistered Investment Companies, 67 FR 60617 (Sep. 26, 2002))

In that notice of proposed rulemaking, FinCEN proposed to define the term “unregistered investment company” as (1) an issuer that, but for certain exclusions, would be an investment company as that term is defined in the Investment Company Act of 1940, (2) a commodity pool, and (3) a company that invests primarily in real estate and/or interests in real estate. FinCEN proposed requiring these companies to file a notice so that FinCEN could readily identify such companies and require them to establish and implement anti-money laundering programs.

I have been watching that rule-making process because it could have a profound impact on buying and selling real estate. For big commercial transactions we keep an eye on the parties to see if there is a reason to be wary and to see if they on the Specially Designated Nationals and Blocked Persons List. But I had some concern that they could extend the “know your customer” rules deep into real estate transactions imposing lots of administrative overhead for little benefit. 

Yesterday, FinCEN gave notice under 31 CFR Part 103 Withdrawal of the Notice of Proposed Rulemaking for Anti-Money Laundering Programs for Unregistered Investment Companies . FinCEN is not abandoning the possibility of pursing the rulemaking. Given the six year span since the notice, they feel it has gone stale. If (or when) they decide to proceed with an anti-money laundering program requirement for unregistered investment companies, they will publish a new notice.
 
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The Urban land Institute’s  Emerging Trends in Real Estate for 2009 came out with a picture of doom and gloom, predicting that in 2009, commercial real estate will suffer its worst year since the industry’s crash of 1991-92, with a noticeable rebound unlikely until 2011 at the earliest. It also forecasts a decline of 15% to 20% in property values, on average, from their 2007 peaks, with even sharper declines coming in weaker markets.

Of the 50 markets tracked, the study found only Dallas and Houston have prospects for investment and development in 2009 that should be better than in 2008, thanks to their exposure to the energy industry. All other markets face deteriorating conditions next year, the study said.

But, the report does point out that there are opportunities to be found.

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Pensions and Investments Online put together a list of the Largest Real Estate Investment Managers. The list is ranked by total worldwide real estate assets, in millions, as of June 30, 2008.

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The White House and Congressional Leaders finalized the Bailout Bill: Current draft of the Economic Emergency Stabilization Act of 2008. (from the Wall Street Journal) It will be interesting to see how it progresses through the House and Senate. I expect to see a lot of salesmanship as politicians try to weave into their current political campaigns.

What does it actually do?  Read this summary from the WSJ.com: Shape of Massive Bailout Bill Starts to Develop Definition. 

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Over the weekend, Lehman Brothers lost its interested buyers and got ready to file for bankruptcy. According to the New York Times, interested buyers wanted the federal backstop that was put into place for JP Morgan Chase purchase of Bear Stearns: 2 Wall St. Banks Falter; Markets Shaken.

According to the Wall Street Journal, the lack of a backstop scared off Bank of America and Barclays PLC: Ultimatum by Paulson Sparked Frantic End. Most people think various buyers will swoop in and buy individual pieces of Lehman.

On Sunday afternoon, a trading session was opened to allow firms to try to unwind their derivatives transactions with Lehman by finding other parties to step into Lehman’s shoes: Lehman Risk Reduction Trading Session and Protocol Agreement.

It should be an interesting Monday and an interesting week.

Thanks to Rob Hyndman for coming up with this blog post title. I stole it from one of his Twitter Post (@rhh)

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All of these companies are clients of The Firm, but I am not aware of The Firm’s participation in any of the weekend’s events. If The Firm was involved, I was not. 

National Real Estate Investor published a story by Joe Gose on the flow of capital into distressed property funds: Opportunity Funds OVERFLOWETH.

“Opportunity funds concentrating on distress intend to take advantage of the seized-up debt markets in a few different ways. Many funds are buying debt at a discount from investment banks stuck with billions of dollars of loans they can’t securitize. Other investors believe loose underwriting and over-leveraged properties will soon lead to maturity defaults, essentially defaults that occur when a landlord can’t refinance a property because it isn’t worth the loan coming due or because a landlord can’t come up with a slug of equity that lenders want. Those funds intend to buy up that real estate, or at least gain a position in the assets.”

It will be interesting to see if the capital markets come back into time to avoid a commercial real estate crash.  The loose underwriting standards we saw eighteen months ago are gone (for the foreseeable future). But most commercial property owners have enough cash flow to pay the monthly debt payments.

The problem will come at maturity. Commercial property owners may have a hard time rounding mortgage debt to replace the maturing debt. It was the short maturity on Mr. Macklowe’s debt that forced him to sell the GM Building. More commercial property owners are going to be faced with mortgage debt maturity. Will there be mortgage debt there to replace it?

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Blockshopper.com is trying to make news out of residential transactions. The site has launched in Chicago, St. Louis, South Florida and Las Vegas, trolling the listing services and registries of deed to find what notable people are doing with their real estate.

According to Law.com, some lawyers at Jones Day are not happy that their real estate purchases are making headlines: Lawyers Shrink From Web Real Estate Spotlight. They have sued Blockshopper. Of course, that is just more publicity for Blockshopper. Not free publicity since they will need to pay the lawyers.

Will the suit go anywhere? I thought real estate records were public documents and open for anyone to see. So what is the problem?

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