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Highwoods Properties Inc. Message Board

  • reitsbyziggy reitsbyziggy Aug 24, 2002 10:16 AM Flag

    Landlord Rights Post Bankruptcy

    When the Worldcom's and the US Air's get Debtor In Possession financing-can these funds be used to pay rent like it would other current operating expenses. In the interim until the leases are affirmed or rejected does any money flow to the landlord? Or if the lease if rejected is the landlord entitled to back rent from the time of the bankruptcy filing with this DIP money? If this is true it seems like time is on HIW's side because this interim period could very well be the trough of the office market.

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    • REITs have worked well for me for the last two years. (Not much else has) I am now starting to wonder if the best returns are past. My fear is that we are in the third stage of the real estate cycle where rents decline and vacacies increase. The forth stage is more of the same, only more brutal.
      The recent downgrade of HIW's credit basically pointed to these problems. I still own a lot of REITs and preferreds as I don't see any better place to invest.
      Any thoughts?

      • 2 Replies to Snobird2b
      • I had owned HIW for about 3 yrs and CRE a few months. Also purchased TRZ after the big sell-off recently. I sold all a couple of weeks ago because I think I will be able to buy them back 15-20% cheaper before the year is out. I see no good news for the office REITS for awhile. More bad news, on the other hand, is likely imo. I like them long term, but am gambling that they have more downside risk than upside potential in the short run.

      • Maybe the most important question to ask yourself is how longterm are you able and willing to invest? If you will be forced to sell in the next year or two then you might not be able to ride out a downcycle in REITS and so perhaps you should sell out and keep your money in money market funds despite the zero yeild. On the other hand if your horizon is 5 years or better - the question becomes what are the better alternatives? I have been primarily in REITs and preferreds since 1996 - the LTCM debacle and subsequent two year decline was really painful to watch as I lost 30% on paper in my REITs and preferreds - however, I didn't have to sell and the dividends kept rolling in. Did I get hurt? Not a bit! You ask if the best returns are past? My guess is that quite likely the best returns for this cycle were in 2001. A better question might be are there currently better returns someplace else? So far I'm not finding a lot of other good prospects so I'm focusing on trying to be invested in REITs that I believe will do well over the long term and in preferreds of companies that I believe will keep paying their dividends. So far I put HIW in that category. If you can manage to pick stocks that will appreciate rapidly without also picking a bunch that tank rapidly - then you may be able to beat reits and preferreds. But I have personally concluded from experience that I am not Peter Lynch and I better not delude myself into thinking or acting like I am.

    • There is a formula as to how much rent the landlord is entitlted to based upon the length of the lease being rejected. Usually that is paid in some new post BK security. As far as back rents go the landlord has a superior interest to general creditors because of the contractual nature of leases. DIP financing would have to pay past due rents before general creditors in pecking order.

      • 1 Reply to ferdiefor
      • I've heard of cases where landlords have previous deposits in hand from some tenants, sometimes in the millions. I don't know whether BK laws prohibit the tapping of these deposits in satisfaction of overdue rents but a few years ago the former Beacon Properties was able to have a near seamless flow of funds due to prior deposits from a bankrupt tenant.

        Anyone know the situation here with Worldcom and US Air?

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