Still bringing home bacon

<i>While most struggle, work soars for lucky few</i>

It should come as no shocker that for most New York City real estate professionals, particularly developers, brokers and sales agents, the pace is a lot slower than it was during the boom.

However, for Phil Rosen, a partner at the prestigious law firm Weil Gotshal & Manges, that’s not the case. Rosen, the co-head of the firm’s real estate division, says he is working 75 to 80 hours a week now, compared to about 60 before the bust. “It does add a bit of
stress,” he says. Rosen isn’t alone. From auctioneers who are helping real estate owners unload troubled properties to research firms that are providing information to distressed sellers and vulture investors, there are players in the real estate industry who are thriving amid the doom and gloom. Even some property managers are making out as building owners look for ways to cut costs. As for Rosen, he’s heavily involved in the firm’s workout duties — “workout” being banker-speak for the resolution of bankruptcy or near-bankruptcy situations where a troubled debtor works things out with a swarm of creditors.

Weil Gotshal is involved in the disposition of Lehman Brothers’ $43 billion real estate portfolio. The firm is also handling the attempt by General Growth Properties, the mega mall operator — which counts the South Street Seaport, the Staten Island Mall and New Jersey’s Paramus Park Mall as part of its portfolio — to keep itself afloat. Last month, the company made national headlines when it filed for Chapter 11 bankruptcy.

“Business has definitely increased for us in the restructuring arena,” Rosen says. “We are considered the firm that specializes in workouts and restructurings.” This kind of work obviously takes more effort than simple transactional assistance. “It’s extremely partner-intensive,” Rosen says. “It’s very intellectually challenging. You’re coming up with solutions to very complicated problems.” Perhaps the most stressful element of this work is that the fate of companies and their workers hangs in the balance. “For a lot of clients who are in distress, workouts are ‘bet the company’ situations,” Rosen says. “The future of the company is at stake.”

Others are also seeing a boon from the bust.

Lawrence Weiner, a lawyer at Wilentz, Goldman & Spitzer, helped his firm develop a Web site called No-Condo.com that assists purchasers of condos, including many in New York City, in determining whether they have a case to sue developers in order to get out of their contracts.

“We’re getting more than 100 inquiries a day,” Weiner said. “We have more than 30 clients for whom we’re currently pursuing cases.” Among the condo projects Wilentz has sued are 20 Pine Street, 75 Wall Street, 111 Fulton Street, the Rushmore on the Upper West Side and One Brooklyn Bridge Park.

Another business called On-Site.com, which helps residential landlords screen tenants by investigating their financial health, has also been busier post-crash than previously.

“In New York, while there are far fewer new rental projects due to financing constraints, busted or underperforming condo projects are being rented out, resulting in more business,” says Jake Harrington, the firm’s director of business development.

“With job losses and increased vacancies, landlords are [also] upping the ante with concessions, which is prompting many to move across the street for a deal.” Hence more work in vetting potential tenants.

Meanwhile, as developers at troubled buildings try to unload property, auctioneers also are seeing business pick up. As The Real Deal reported in March, Accelerated Marketing Partners, a firm that specializes in condo auctions, is in talks with several developers in New York about putting their units up for sale. A number of other companies, including Sheldon Good & Co., are doing the same.

“We’re seeing a level of inquiry that I haven’t seen in my entire career of about 16 years,” said Jeff Hubbard, the partner in charge of
Sheldon Good & Co.’s New York City office.

“The auction is a market-creating device,” he said. “It accelerates the time frame. You can sell 12 to 18 months of inventory
in one day, eliminating carrying costs.”

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Hubbard said the company has auctioned properties in Weehawken, Jersey City and Hoboken. And, though he declined to name specific New York City projects, he said the firm will conduct auctions soon for such properties in Manhattan, Brooklyn and Queens.

Ultimately, Manhattan office buildings will go on the auction block, just as the John Hancock Tower did in Boston, he said. “I believe commercial properties of all types will utilize the auction process,” he said.

The gatekeepers of market statistics also are in high demand, of course, when there is so much anxiety about what is happening in the market. That’s where firms that provide data come into play.

Real Capital Analytics, for example, compiles closely watched information on the commercial real estate market.

“We were sitting around in September, realizing that sales were coming to a halt,” said Bob White, president of the firm. “The whole playing field has changed. We had to change our product and information to keep it relevant.”

Since the downturn, the firm has devised a database to provide information about distressed commercial properties. “We have been able to tap into a huge amount of information about properties in default and foreclosure, about bankruptcies of limited partners and financial companies under duress because of high leverage,” White said.

“We have built a competitive product with information about CMBS [commercial mortgage-backed securities] and loans held by banks and financial companies,” he added.

Heavy demand for the data has come from owners, servicers of distressed properties and vultures eager to invest in them. In the past
year, as companies nationwide and in New York have folded and downsized, Real Capital Analytics has increased its revenue modestly and added one or two staffers, bringing its payroll to 65, White said.

Another research firm, RealtyTrac, was well-positioned for the downturn even before its launch. Since its inception in 1996, it has
focused on foreclosures.

“Consumer interest in distressed properties is at an all-time high,” said Rick Sharga, the firm’s senior vice president. “We are getting about 3.5 million unique visitors to the Web site a month.”

That’s a gain of more than 100 percent from three to four years ago, at the peak of the real estate boom, he said.

One last note: While it may seem counterintuitive, John McGinley, senior vice president of property management for Grubb & Ellis, also said business is up about 40 percent over the last six to eight months.

Grubb & Ellis’ property management division has observed increased demand from landlords who previously were busy buying buildings and were not going to a third-party vendor for management services. It also has seen more demand from corporations that own their facilities and whose focus did not turn to cost until recently.

“If we indicate we can save expenses for someone, they may act more quickly,” McGinley said.