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Everyone knows it’s been a tough year for developers and brokers. But it’s also been a difficult economic stretch for the lawyers who represent them.
While New York City’s real estate lawyers may no longer be drafting legal documents for building sales and new condo projects, they are busy working on other things, including loan workouts, bankruptcies and litigation with lenders.
This month, The Real Deal ranked the New York City law firms with the biggest real estate practices. Topping the list was Fried, Frank, Harris, Shriver & Jacobson with 60 real estate lawyers — nearly 20 percent of the 309 lawyers in their New York offices.
Ranking second and third were Greenberg Traurig and Proskauer Rose, with 57 and 49 real estate lawyers, respectively. Rounding out the top five were Herrick, Feinstein and Skadden, Arps, Slate, Meagher & Flom, each with 46 real estate attorneys.
To maintain their dominance, New York’s big real estate law firms have had to shift lawyers — who in the boom handled transactions — into other areas.
“Obviously, there was a lot less buying of properties” during the recession, said Jonathan Mechanic, chairman of the real estate department at Fried Frank. “We were spending a lot more time [either] restructuring existing debt on behalf of borrowers or lenders, and buying debt, where people thought there were opportunities to buy debt, or buy back debt, at a discount.”
Jay Neveloff, a partner at Kramer Levin Naftalis & Frankel, which ranked sixth with 45 real estate lawyers, echoed that point.
“We’ve handled not only asset-based transactions, but also [clients who] bought and sold debt,” he said. “Most debt transactions involved some level of distress.”
But Neveloff said a few of the sales were, in fact, non-distressed transactions, including Starwood Hotels’ sale of the retail component of the St. Regis Hotel on Fifth Avenue for “in excess of $100 million.”
That was not the only big transaction — distressed or otherwise — during the recession. (See the accompanying chart below or click here for a breakdown of the top 10 firms’ largest 2009 deals.)
In 2009, for example, Fried Frank represented developer Forest City Ratner in connection with the sale of over $500 million in tax-exempt bonds for the financing of the new Barclays Center, the planned arena for the Nets, the centerpiece of the Atlantic Yards project in Brooklyn. The firm also represented the developer in completing arrangements with the state, city and MTA for development of the entire Atlantic Yards project, which broke ground last month.
And Greenberg Traurig represented Barclays Capital in the transfer of more than $2 billion in distressed assets from Crescent Equity to a joint venture between Barclays and Goff Capital. (Morgan Stanley had purchased Crescent in 2007 with cash and a $3.3 billion Barclays loan, but after selling some of Crescent’s assets got stymied by the downturn and turned Crescent back over to Barclays, which forgave $2 billion of the loan.)
Like all businesses, the city’s real estate law divisions have all had to cut costs to weather the downturn.
Boutique firm Rosenberg & Estis — which was one of only four boutique firms to make The Real Deal’s top 20 list — promised its staff that there would be no layoffs. Instead, however, the firm, which tied with Belkin Burden Wenig & Goldman for seventh place on the list with 44 real estate lawyers, had to freeze its hourly rate for 2010, said Gary Rosenberg, a founding partner.
“We met with everybody, and we said we’re going to cut back on holiday parties and picnics and things like that … but we’re going to try maintaining the entire staff,” Rosenberg said. “I think suddenly keeping a job became the ‘new good news.’”
While Mechanic did not directly answer the question of whether Fried Frank laid off lawyers, saying only that “everyone’s tightened their belts,” Robert Ivanhoe, the chairman of the global real estate practice at Greenberg Traurig, said he had to let people go.
“I think all the firms have shrunk pretty considerably,” he said. “We’ve shrunk about 30 to 35 percent, in that range, and my observation is that everybody else has shrunk that much or more.”
Ivanhoe said that while the core transactional real estate staff at Greenberg Traurig has decreased in size, the firm actually added more real estate restructuring attorneys about a year ago, including 15 that were hired away from the international firm Cadwalader, Wickersham & Taft.
“What we tried to do here … was beef up our real estate litigation capabilities and our real estate bankruptcy capabilities because, having lived through a time like this before, in the early ’80s and ’90s, it was clear to me that the way we were going to best serve our clients and maintain our prominence was to be able to service clients through this part of the cycle,” Ivanhoe said.
As a result, he said, Greenberg Traurig has been involved in major bankruptcy cases, such as that of megamall operator and South Street Seaport owner General Growth Properties, as well as that of Extended Stay Hotels.
The $3.8 billion General Growth case of 2009 was so large, it involved a number of firms, including Bryan Cave, which ranked 10th on The Real Deal’s list with 40 real estate lawyers. Weil, Gotshal & Manges, which with 25 real estate lawyers fell just outside the top 20 law firms, has been serving as co-counsel for General Growth Properties, along with Kirkland & Ellis, a firm with expertise in litigation.
Carl Schwartz, chairman of Herrick, Feinstein’s real estate department, said his firm has also taken the downturn as an opportunity to hire some senior lawyers “who wouldn’t have been on the market if the world was different.” That doesn’t mean the firm hasn’t lost a few lawyers, but its losses were primarily through attrition, Schwartz said.
Like other firms, Herrick, Feinstein has seen its number of billable hours drop during the recession, but Schwartz said the lawyers are still busy doing research and development work, marketing and networking to build relationships.
The overarching atmosphere has, of course, changed for real estate lawyers in the city. The festivities tied to boom-year real estate transactions are all but dead now. Ivanhoe said the real change came around January 2008, when the banks largely turned off the financing spigot.
“When I handled the sale of Stuyvesant Town/Peter Cooper Village in late 2006, which was the largest real estate transaction ever in the United States, it was very high-profile and everybody was happy: The buyer was happy, the seller was happy, the lawyers were happy,” he said. “Now, very little is celebratory. A celebration for the client now is more in the nature of, ‘I dodged a bullet.’”
In fact, with clients struggling to pay their legal bills, firms have had to implement creative billing schemes, such as pre-negotiated discounts or “value-based billing,” a form of billing that doesn’t rely on a flat hourly rate, but instead can sometimes include a combination of a fixed hourly rate and a fixed monthly budget. Some firms have “blended” rates, charging the same hourly fee for junior and senior lawyers. Other firms have worked on a contingency basis, and some have even taken equity in projects in exchange for legal fees.
“We really do consider ourselves partners to our clients, so when they’re going through challenging times, we try to find ways to be creative about the way we bill them,” Schwartz said.
Still, it looks like New York City’s largest real estate firms and divisions may have weathered the worst of it. Schwartz said Herrick, Feinstein has seen an increase in the number of transactions it’s handling in the past two months.
Fried Frank has not only seen an increase in transactions, but is expanding its physical space for the first time in a while, though not in New York, Mechanic said. In February, the firm signed a 16-year lease for 102,000 square feet of space in Washington, D.C.
“I think right now things are much more active,” Mechanic said. “People are doing transactions. There’s still some uncertainty, but people are much less fearful.”