In 2009, the landscape was bleak for New York City real estate lawyers.
Many of the big firms tried shifting people between departments to deal with the slowdown in real estate business caused by the economic downturn. Then, they let people go through attrition, and even outright layoffs. But it still wasn’t enough, lawyers said.
“When we were at our smallest, we still weren’t as busy as we’d like to be,” said Robert Ivanhoe, chairman of the New York office and the global real estate practice at Greenberg Traurig. “Even after the downsizing, we weren’t at capacity.”
Ivanhoe, though, was happy to be speaking in the past tense. In the last six months, he said, Greenberg Traurig’s New York real estate practice has increasingly focused on transactions, rather than the debt restructuring work that his and other firms fell back on to keep busy in the lean years. Executives at other top firms agreed: Though the Manhattan market is not back to its pre-recession levels, there is enough new business to keep real estate lawyers’ hands full.
During the worst depths of the downturn, the climate was tough for lawyers. The New York City-based law firm Thacher, Proffitt & Wood dissolved because of its heavy involvement in mortgage-backed securities work. Meanwhile, the city’s big real estate law firms saw “a change in focus from transactional work to workouts,” said Carl Schwartz, a partner in the real estate department at Herrick, Feinstein LLP. Instead of lucrative, time-intensive real estate deals, lawyers were working on “debt acquisition, getting control of the real estate, restructuring, foreclosing, all that stuff,” he explained. “[But] frankly, there was a whole lot of nothing going on, too.”
Now that the market has been improving somewhat, lawyers are seeing an uptick in transactional work. “A year ago, we were cleaning up messes,” Schwartz said. “Now we’re doing deals.”
In recent months, Herrick has worked on Sherwood Equities’ acquisition of a stalled development site at 508 West 20th Street; handled the foreclosure sale of 612-618 West 47th Street; and represented investors Yaron Bruckner and Nathan Berman in their $205 million joint-venture acquisition of 70 Pine Street, the landmark American International Building.
Law firms are also keeping busy behind the scenes. With available properties scarce and demand now high, Schwartz said, lawyers are working with investors to evaluate potential acquisitions and assist in bidding wars.
Bread and butter
Another newly busy area for attorneys in Manhattan, Ivanhoe said, is recapitalization — or deleveraging overleveraged properties. He said property values have rebounded enough that many owners with large debts can bring in new investors and refinance, sacrificing some equity in exchange for a more favorable mortgage.
“Values are still not back to where they were in 2007, but they’re a hell of a lot better than they were in 2009,” Ivanhoe said. “Now that a sale will yield enough money to pay off an existing loan and yield some profit on existing properties, people are willing to sell again.”
Real estate transaction work is especially time-consuming and document-intensive, requiring a lot of staff — all good things for a law firm’s bottom line.
“We’re much better off if our real estate expertise is employed in handling complex real estate transactions, which is our bread and butter,” Ivanhoe explained.
That type of work, he added, did not pick up until sometime in 2010, when property owners had been through the process of “price discovery”– coming to terms with the size of their losses and becoming willing to move on.
Jay Neveloff, a partner at Kramer Levin Naftalis & Frankel, said he’s encouraged by the kinds of transactions he’s now seeing: longer-term deals on stronger properties.
“There isn’t a day when I do not get multiple calls from people looking for deals,” Neveloff said. In particular, his firm has been involved in a lot of property auctions and joint ventures. Of the latter, he said, “These are deals where a lot of equity is committed, financing is arranged or close to being arranged. Two years ago, you weren’t seeing all that joint-venture work.”
In May, Kramer Levin represented Africa Israel USA in the $160 million sale of an office condo in the former New York Times building. The firm also represented St. Vincent’s hospital in its April bankruptcy restructuring and the $260 million sale of its Greenwich Village campus.
The pipeline of future deals also looks promising, Neveloff said, noting that his firm’s land-use lawyers “are very busy right now,” he said. “So what does it mean? It means that people are starting to build again.”
This time around, the New York City market began to recover faster than in previous recessions, said Mark Edelstein, chairman of the real estate group at Morrison & Foerster.
“We actually have workouts and new deals going on at the same time,” Edelstein said, adding that he had never seen both at once before.
At Morrison & Foerster, which has large creditors among its clients and does strong business in distressed real estate sales and bankruptcies, Edelstein said the mix of cases a year ago was about 75 percent workouts and 25 percent new deals. Now the percentages have reversed, he said.
A return to hiring
In response to all of this, law firms are starting to hire again, after a period in which most cut their staffs. Neveloff said Kramer Levin hired a senior associate a few weeks ago, and Schwartz said Herrick, Feinstein is slowly beginning to hire again as well.
“Relatively speaking, there have been very few associates hired into real estate, here and at other firms, over the course of the last three to four years,” Schwartz noted. As a result, “there’s going to be real competition for quality associates, because not nearly enough associates have been getting trained — there wasn’t enough work for them.”
Ivanhoe said Greenberg Traurig, which downsized “pretty significantly” during the downturn, started hiring again about six months ago. In June, the firm announced that it had tapped high-profile attorney Peter Miller, of Akin Gump Strauss Hauer & Feld, to join its real estate practice.
These days, real estate attorneys are most concerned about the recent stock-market turbulence and the uncertain debt picture in the United States and Europe. Though it’s too early to tell how New York’s real estate market will react, Ivanhoe said, the question is how the upheaval will affect the capital market, and whether financing will remain available.
Still, he said, the market’s progress to this point — and the local law business’s rebound — has been good news.
“I would not have thought we would come this far this fast,” he said, “so I’m very pleasantly surprised.”