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LOS ANGELES � Centro Watt’s purchase of Heritage Property Investment Trust: $3.2 billion. GE Real Estate’s acquisition of Arden Realty: $4.8 billion. Kimco Realty Corp. and Pan Pacific Retail Properties merger: $4 billion. If those don’t sound like routine real estate transactions, it’s because they aren’t. Equity and pension funds have been pouring money into ever more complicated deals in recent months. Those deals � and the choice legal work they create � have caught the attention of top national firms, turning what had been a price-sensitive practice area into a hot commodity. “Law firms have discovered that the financing of those transactions has become increasingly sophisticated,” said Jesse Sharf, the co-chair of Gibson, Dunn & Crutcher’s real estate group. “They’re really large transactions that every law firm would love to do.” Now, firms that had moved away from midmarket real estate work � which can’t support top-shelf billing rates � are rushing to staff up. With 60 lawyers, Gibson’s real estate department is 50 percent larger than it was five years ago, Sharf said. And other firms are looking to get in on the action. In June, Seyfarth Shaw poached Pillsbury Winthrop Shaw Pittman partner David Roseman to expand its presence into the West Coast real estate market. Earlier this year, Goodwin Procter opened a Los Angeles office, anchored by former Pillsbury real estate partner Lewis Feldman. Valerie Fontaine, a legal recruiter with L.A.-based Seltzer Fontaine Beckwith, said the firm has about 100 open searches for real estate partners in California, and even more for associates. Clients tell her they want to reach the critical mass necessary for new business pitches, and to ensure the capability necessary for the larger deals. Many large firms had scaled back or even shed their real estate practices as it trended toward what Latham & Watkins partner Paul Tosetti calls “garden variety widget work.” “By contrast, these big deals are more M&A than real estate, and you’re able to get the high rates big firms gear themselves to the pursuit of,” Tosetti said. As in many other sectors, consolidation is driving the large-scale nature of many real estate investment trust deals. As early as two years ago, REIT deals were more localized because people didn’t realize the synergies associated with property management, said Tosetti, who led the Arden Realty deal. “Things are becoming more national, more global,” he said. “People are seeing deal activity and it’s definitely being noticed.” Investor migration to real estate picked up steam after the dot-com bust, said Steven Edwards, the co-chair of O’Melveny & Myers’ real estate group. “Everyone said, there is this class of assets that are actually creating cash flow,” he said. “It’s been an increasing phenomenon ever since.” That’s changing the nature of the practice at firms like O’Melveny. With upward pressure on billing rates, the firm’s real estate practice group had shrunk and shifted focus. Now, it’s looking to grow again but in a more focused � and lucrative � direction. O’Melveny no longer competes for run-of-the-mill business such as ordinary leasing work or less sophisticated loan work, Edwards said. “In order to justify rates, we’ve had to migrate to more sophisticated transactions � capital market type stuff,” he said. “There’s lots of pressure on our group to find types of clients who can absorb our rates.” Anton Natsis, a partner at Allen Matkins Leck Gamble Mallory & Natsis, a top real estate boutique, says he isn’t worried about firms rushing in to service these mega deals. “When it comes to transactional work, firms like Gibson get their share, but there’s plenty of real estate work to do,” he said. Gauged by dollar value, Natsis said Allen Matkins’ biggest transaction over the past year was a $1 billion mixed-use redevelopment of the former El Toro Air Force base in Irvine � a large-scale development deal backed by some institutional money. Natsis has watched as the industry has carried real estate lawyers through various cycles, from the go-go days of the 1980s construction boom to the scaling back in the 1990s through today’s ultra-sophisticated deals. Globalization is affecting the sources of capital and the size and sophistication of the deals but, Natsis points out, much of the legal work remains local. For example, he notes that Allen Matkins does the West Coast work for Boston Properties, a major REIT, while an East Coast firm does its work there. Meanwhile, real estate lawyers predict deals will continue to become more complex as capital markets evolve and new investment products emerge. “A real estate partner today is one who does sophisticated financing � a very different practice than transferring title to properties,” said Barnet Phillips IV, a Skadden, Arps, Slate, Meagher & Flom partner who worked on the Centro Watt acquisition. Consultant Peter Zeughauser predicts that as real estate work grows more finance-driven, big firms will follow the model of Hogan & Hartson, where REIT work is run out of the corporate department, rather than as a real estate practice. Other firms treat the complex deal work as a hybrid, bringing in lawyers from various practice groups to staff the various components. No matter what you call it, the practice is hot, said Latham’s Tosetti. “Real estate is everyone’s flavor of the month right now,” he said. “People are saying, if those smart guys at private equity fund A are looking at it, we should be too.”

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