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Earlier this month at Mipim, the world’s largest property market jamboree, the mood was upbeat. Buoyant even. Despite all of the geo-political, economic and social uncertainty destabilising the globe, the assembled throng of real estate specialists generally agreed that the signs are good.
In particular, the prospects for international real estate investors with pots of cash to spend look positive. This is welcome news, not least for the real estate teams at the world’s largest law firms.
“People were definitely more upbeat at Mipim,” says Nabarro senior partner Ciaran Carvalho. “The high net worths are still looking at London, the Hong Kong investors are saying they still believe in London. That said, the next wave will be outside the UK, it will be international.”
In the context of the global legal market, the significance of this upbeat sentiment and Carvalho’s horizon-spotting comment is hard to overstate. While for many big firms bricks and mortar-related real estate as a practice area has long been a central part of the business, for a growing number real estate as a sector is increasingly core.
The distinction is worth making, not least because of the impact it is very visibly having on law firm recruitment. The shift has had a major impact on global firms’ real estate strategies, with key areas such as private equity, tax and finance taking centre stage. The hiring patterns of US firms in London over the past few years is the clearest evidence of this.
In short, as real estate has become one of the world’s most significant asset classes the biggest law firms have moved with it. As a result, the sector is now at the heart of some of the most significant developments in the legal market.
Real estate hot spots
The ongoing shift in the international property legal market from practice area to sector goes to the heart of The Lawyer’s first-ever global real estate report, appropriately enough titled ‘Global 200: Real Estate’.
For the first time we have surveyed the biggest and most significant law firm real estate practices around the world, quizzing them about the hottest areas of their practice, global property market trends, and the impact on their strategies of developments such as a looming Brexit, the arrival of President Trump and the wave of European elections.
“The next wave of capital will be outside the UK, it will be international” Ciaran Carvalho, Nabarro
The starting point for this report is last year’s Global 200 report. This tracked every one of the almost 65,000 partners in the current group of the world’s largest firms ranked by revenue.
The new real estate report has updated this headcount data and delved deeper than ever before into the drivers, deals and strategies behind the top real estate practices.
Several firms can justly lay claim to a global real estate practice based on headcount alone. The rapidly expanding Dentons now has the largest real estate practice in the world, with a total of 352 real estate partners and some 1,200 lawyers who spend more than 50 per cent of their time on real estate-related matters.
What is notable, however, is that for a firm that has much of its origins and current leadership based in the US, Dentons’ is relatively small in headcount terms in north America.
By far the biggest portion of Dentons’ real estate partners are in the Asia-Pacific region, with 213 partners at least half of whom are thought to be based in the generally lower fee jurisdiction of China.
DLA Piper, second place in the ranking, has 171 partners in its core group globally but 220 working on real estate-related mandates and a total of 700 lawyers. The firm claims to have real estate capability in virtually every one of its offices worldwide, blanket coverage that is a neat reflection of how deeply embedded real estate is at the firm.
“We’ve just added offices in Chile and Mexico [via a cooperation agreement with Bahamondez, Alvarez & Zegers in Santiago, Chile and a combination with Mexico City’s Gallastegui y Lozano] and it was important to make sure that when we picked those new partners, they had real estate capability,” says DLA Piper partner Olaf Schmidt, co-chair of the firm’s global cross-practice real estate sector group. “Real estate is right at the roots of DLA Piper, it’s always been both a sector and a practice group of strategic relevance so wherever our senior management goes, real estate will never be overlooked.”
Both Dentons and DLA Piper have a strong practice in the UK (18 and 55 partners, respectively) and mainland Europe (39 and 47). In contrast, the firm in third place in the global rankings, Holland & Knight, has 139 real estate partners but none in the UK, Europe or Asia. Yet it is one of the firm’s core strengths, generating around 20 per cent of total turnover.
Notably it is one of the few firms that in the US in particular has specifically tailored its services to the unique needs of Chinese investors. The firm operates a Chinese investment team headed by Florida-based partner Geneve DuBois, offering a range of services tailored and formatted to the needs of Chinese clients.
“Wherever our senior management goes, real estate will never be overlooked” Olaf Schmidt, DLA Piper
DuBois reports that while initially most Chinese investors were focused on major US ‘gateway’ cities such as Los Angeles, San Francisco and New York, there is now an emerging trend for investments in secondary cities and regions including south Florida, Dallas, Minnesota and Atlanta.
“The returns can be better, opportunities can be better and the costs can be lower,” says DuBois, who says she is currently working on a Miami-based project for a Chinese investor that is due to complete by the end of 2017. “The clients are not necessarily looking for trophy, high-splash projects but they’re certainly opening their minds to these alternatives.”
Greenberg Traurig emerges as the largest real estate practice in the US with a total of 150 partners. Unlike Holland & Knight it has around 50 partners based outside its homeland, and indeed recent months have seen it grow significantly in the UK and Europe.
The globalisation of legal panels
In the questionnaire for the Global 200: Real Estate report we asked firms whether they believed that their international real estate clients were increasingly favouring global panels with a reduced number of firms. The results confirmed the trend for reduced panels.
Almost a third (30 per cent) of firms said they agreed strongly with this statement. Another 41 per cent said they agreed slightly. In total almost three-quarters of all respondents had seen panels reduce in size.
Just 4 per cent disagreed strongly with the statement with another 11 per cent disagreeing slightly, a total of just 15 per cent. The remaining 15 per cent said they neither agreed nor disagreed.
The results appear to confirm that a growing number of major real estate clients prefer to work with firms that have the resources to handle the majority of work in-house. Interviews with senior lawyers for this report back up these findings.
As one puts it, this is more evidence of the rise of the GC within organisations while one of the key drivers is the issue of control.
“GCs are more risk aware so if they have too large a panel there’s an inherent risk because the external legal spend becomes more difficult to control. Also it becomes more difficult for them to get preferential pricing. So we do hear quite a bit that in return for being on a panel the client expects a decent rate, and in return we can generally expect a decent amount of work.”
Big doesn’t have to mean global
Eversheds (now Eversheds Sutherland) makes its first ever appearance in a US ranking while Norton Rose Fulbright can expect to see a sharp rise in next year’s report when the partners from Chadbourne & Parke are added into the mix (the two firms are set to merge in the second quarter of 2017).
Clifford Chance is the only one of the UK four magic circle firms to make the US real estate ranking, with nine partners.
But this report is not solely about the world’s biggest real estate teams. Indeed, as last year’s Global 200 report highlighted, real estate-led firms may be less likely to have gone global with their practices (a trend which may present opportunities for combinations).
Notably Seyfarth Shaw’s 70-strong practice is all domestic, as is Akerman (65), Polsinelli (60) and Kutak Rock (59).
Texas firm Jackson Walker has some 381 lawyers of which more than 50, or around 15 per cent, are real estate lawyers including 32 partners. Back in the 1970s the firm had a relationship with fellow Texas firm Baker Botts but in the 1980s it began expanding and now, with seven offices, is the largest firm that is physically located solely in the state.
According to partner Bryan Birkeland, the firm’s approach to the global market is to partner with like-minded local firms as well as larger firms that may lack the specialist real estate credentials it possesses, notably Simpson Thacher & Bartlett and Sullivan & Cromwell.
In the UK Jackson Walker had a 25-year relationship with Davenport Lyons, now part of Gordon Dadds, and is part of the GlobalLaw network it founded in 1994.
In contrast while Skadden Arps Slate Meagher & Flom is clearly one of the most global firms on the planet, in pure real estate partner headcount it is relatively small with just 12 globally. Yet this lack of headcount has not stopped Skadden from scoring the big numbers in other ways, notably advising on real estate deals worth a total $115bn in 2016.
In the US in particular the firm is in the upper echelons of the market when it comes to REITs-related work.
On one standout deal last year Skadden represented Amherst Holdings on its $652m sale of a portfolio of 4,262 single- family rental properties to Altisource Residential Corporation, a publicly traded REIT. Skadden also acted for HCP, a healthcare REIT with total assets exceeding $21bn, on a string of deals.
The rise of the pan-European deal
One insight to emerge during the research for this report is the growing number of pan-European real estate deals, a trend that has obvious implications for the strategy of any firm that aims to service clients on these matters.
We asked firms whether they believe pan-European portfolio transactions are becoming increasingly popular.
The biggest proportion (48 per cent) of the firms that responded said they agreed slightly with this statement. Another 33 per cent said they agreed strongly, making a total of 81 per cent of all respondents who had seen an increase in pan European deals.
Just 4 per cent disagreed slightly with the statement while no respondents disagreed strongly. The remaining 15 per cent said they either did not agree or disagree (11 per cent) or didn’t know.
The results overwhelmingly confirm the shift in major clients’ interests in the real estate market from a focus on single, domestic assets to portfolio deals. The strategic implication for the world’s largest real estate practices is that it underlines the need to show clients your firm has the strength and the depth in the key jurisdictions.
Chief among all of the European jurisdictions outside of the UK currently is Germany. Freshfields Bruckhaus Deringer is among those firms that agreed strongly with the statement, adding: “We have been particularly busy working across borders on pan-European transactions.”
A Freshfields team led by partner Alex Watt advised TPG Real Estate and its joint venture partner Ivanhoé Cambridge on one of the biggest deals of 2016, the sale and pre-sale refinancing of European logistics portfolio business P3 to Singapore sovereign wealth fund GIC (advised by Kirkland & Ellis) for €2.4bn.
Real estate takes a central role
The full Global 200: Real Estate report includes more than 30 in-depth profiles of the most significant legal teams in the world, including those that don’t make the top 50 on partner headcount but are clearly significant in terms of client base, deals, profile, revenue and profitability.
On top of the real estate market insights the report reveals it also puts squarely into the spotlight the strategies of the top firms, how they are winning work and the moves they are making to better service clients.
As a global report it not only focuses on the key markets of London and New York but also other market hot spots across the US, Europe and Asia, highlighting market hot spots such as Germany, where private equity-led pan-European portfolio real estate deals are transforming the market.
It highlights the most active asset classes such as logistics, student accommodation, build to rent and private rented, and hotels.
The collective insight gathered together of the world’s most significant and leading real estate practices, who give their views on issues as diverse as the imposition of capital controls in China, of elections across Europe, of Brexit and of the arrival of Trump on the scene is compelling.
For any major firm, this latter insight is critical. As one partner at a leading firm highlights, the real estate market is notable for the immediate impact the boom and bust activity which often characterises the sector can have on a big law firm.
“When it tanks, it can really tank,” admits Mayer Brown partner Jeremy Clay.
In other words, from a staffing, resources and, bluntly, jobs point of view, the health of the global real estate market is top of the agenda stuff.
The profiles are based on extensive interviews with numerous partners and group heads along with submissions from the firms. And clearly the timing of the report could hardly be more topical, not just because of the fact that we now have a New York real estate magnate as US president, European elections with the potential to disrupt the market and a Brexit button set to be pushed this Wednesday.
According to real estate consultant Cushman & Wakefield there is currently some $450bn
in capital available for global real estate
This report aims to track much of that capital through the lens of the major law firm property practices that are advising on the world’s most significant deals and reshaping their teams to be in pole position to capitalise. And, clearly, real estate has been at the centre of many of the legal market’s most significant recent developments.
Real estate as a driver of merger
Last year’s merger talks between Berwin Leighton Paisner and Greenberg Traurig was a real estate-driven deal as was, partly, the merger of Eversheds and US firm Sutherland. The fall-out from the collapse of King & Wood Mallesons (KWM) in Europe has beefed up several property practices (including DLA Piper, Greenberg Traurig and Reed Smith) while bricks and mortar is a key driver of the merger this May of CMS, Nabarro and Olswang.
“When it tanks, it can really tank” Jeremy Clay, Mayer Brown
Following that deal the latter firm will have almost 700 lawyers and nearly 200 partners focusing at least some of their time on real estate matters. Indeed, when asked to articulate its real estate practice’s strategy for this report, CMS’ answer was straightforward: “Our strategy is to be the best real estate practice in Europe”.
The firm adds that the merger will result in it having “the leading real estate team in the UK, both by size and expertise”, with 86 dedicated real estate partners and over 300 lawyers in eight locations across the UK (total partner headcount in the UK post merger will be around 450).
The merger will also turbocharge the proportion of total firm-wide revenue that is derived from real estate work at the enlarged CMS Cameron McKenna Nabarro Olswang to around 25 per cent.
“From a real estate perspective this merger is about three things,” confirms Carvalho. “Hedging, diversification and expanding our international reach.”
Ultimately, it is scale that is likely to be paramount.
To purchase the full report contact Richard Edwards on +44 (0) 207 970 4672 or email firstname.lastname@example.org
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