Set to Fall
Good news: Real estate lending is a slow-motion disaster.
The American Lawyer
By Claire Zillman
September 01, 2009
When James Helsel, Jr., treasurer of the National Association of Realtors, testified before Congress's Joint Economic Committee in July, he painted a grim picture for the nation's commercial real estate agents: Soaring vacancy rates, commercial loan delinquencies that have doubled in the last three years, and more than $100 billion worth of distressed property. And it's getting worse, he predicted. Hundreds of billions of dollars of commercial real estate loans will mature this year, and over $1 trillion in loans will mature by 2012, and with no liquidity in sight, owners will have a tough time finding new financing. "Commercial real estate," Helsel concluded, "is the next shoe to drop."
But bad news for real estate agents could be good news for lawyers. Many firms are expanding their real estate practices, with plans to capitalize on the disputes and restructuring needs that they expect to sprout from the troubled commercial real estate market.
Since the start of the year, 25 Am Law 200 firms have added at least one partner with real estate experience. Anderson Kill & Olick, Dykema, Winstead, and Bingham McCutchen hired three, and McKenna Long brought on board 11 real estate partners from defunct Brown Winfield Canzoneri Abram.
Firms need lawyers to handle "the huge number of loans that must be dealt with in some way," says Ralph Stone, a real estate partner who joined Eckert Seamans Cherin & Mellott in mid-July.
In the same way that "there was a great rush to put together subprime mortgage teams during the subprime crisis," says Elwood Collins, an administrative partner at K&L Gates, firms are scrambling to hire lawyers who can make the most of the commercial real estate meltdown. "It's a very potent way to be well positioned in the current maelstroms," he says. K&L Gates has recruited four partners to the firm's real estate practice since December.
Even lawyers from other practice groups are retooling their resumes to find a niche in the real estate sector. Arnold Barba says he "needed to think about a practice that would thrive in a recession," after his former firm, Brown Winfield, closed its doors in February. Barba pitched his insurance recovery skills to Anderson Kill. The New York–based firm, knowing insurance recovery would be in high demand as investors begin to sue lenders over delinquent loans, hired Barba and two other insurance recovery lawyers in July.
To confront the coming crisis, Manatt, Phelps & Phillips has joined with investment banking firm George Smith Partners to advise borrowers with securitized commercial real estate loans, which represent about 70 percent of all outstanding commercial loans. Manatt partner Adam Salis says the joint venture will streamline restructurings for Manatt's clients because George Smith Partners has the resources to navigate the complicated pooling and servicing agreements that govern lenders.
A few years back, lawyers helped piece together the complex deals Manatt and other firms want to restructure. Anna Glick, a partner at Cadwalader, Wickersham & Taft who specializes in commercial mortgage-backed securities, says these same lawyers are now sought after because they understand how to work out the agreements. "We're on the flip side now," she says, "What went up is now coming down."
