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Bear Stearns Ground Lease Snafu

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hastalavista

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May 16, 2005
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Certified General Appraiser
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Ok, most of us are familiar with JP Morgan taking over Bear Stearns and one of the prizes in that deal is the Bear Stearns HQ building. Or is it?

Update 3:45 AM: Alert reader Steve wrote to tell me another shoe has already dropped, and has been curiously gone largely unnoticed. JP Morgan's option to buy the headquarters is being contested by the ground lease holder. This is a huge oversight. I can't imagine someone at Bear didn't know that this is the sort of thing that its acquirer would want to know, but hey, you pay a knocked-down price in haste, it's your obligation to know what exactly you are getting. At a minimum, this is pretty embarrassing. I assume that the bank will have to pay the plaintiff to go away. Wonder if they'll be able to avoid disclosing the amount.

This story ran in Reuters on Thursday:
In the lawsuit, filed in New York state court, 383 Madison LLC claimed that under a ground lease Bear used for the property, 383 Madison was supposed to be given an opportunity to buy the building if Bear ever considered selling it.

In March, when JPMorgan offered to buy Bear Stearns, it was given an option to purchase the Bear Stearns building for $1.1 billion, even if the deal were to fall apart....

383 Madison claimed Bear committed itself to scenarios under which it would sell the building to JPMorgan without even attempting to give the land owner notice of the agreement or engage in negotiations with it. It also claimed JPMorgan ignored the company's rights under the ground lease.

"JPMorgan wrongfully and intentionally induced Bear Stearns to breach the Ground Lease and the Right of first offer for its own personal gain," the suit claims. The land owner is seeking the right to acquire Bear Stearns' interest in the building or because it believes the building is worth more than $1.1 billion it is asking for the fair market value of the building above that price, according to the lawsuit.

Full story here-
http://www.nakedcapitalism.com/2008/05/senior-bear-departures-signs-of.html
 

murray stroupe

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Apr 27, 2005
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Ground floor oportunity

Dennis ;
Well JPM did always admit its offer was on the low side, one reason being legal costs.
 

Austin

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Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
There have been long threads on this forum concerning the meaning of "Fair Market Value." This is the second article I have read this week that used the term "Fair Market Value" involving Wall Street deals and interestingly they used the term in the correct context as I understand it. Based on my experience the term "Fair Market Value" is predicated on the assumption that there is no market for the product but if there were a market, the underlying assumption, then the value would be "Fair market Value." Market Value involving a viable market does not need the disclaimer of "Fair" because in a competitive market value is determined by supply and demand. Plenty of things have great intrinsic value but there is no market for the product.

I had an interesting assignment two weeks ago. The subject was a 400-acre cattle farm located approximately 5,000 feet from a 10 billion dollar uranium deposit. The uranium company has purchased all of the land up to and surrounding the subject property. There is a huge controversy about mining the uranium and the issue is the potential pollution from the tailings or run off water. Would anyone purchase a cattle farm under these conditions? I think not. All of the adjoining land the uranium company has purchased left the mineral rights to the seller so that is not an issue. The question is: Is this a market value appraisal or a fair market value appraisal? I did it both ways given the intended use of the appraisal.

PS: Would an informed buyer as defined in the definition of market value purchase a residence in a declining market?
 
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