In a nutshell
Real estate has multiple branches. Certainly, the practice no longer simply involves the sale of property by A to B; it now encompasses acquisitions and disposals, financing, leasing, development, joint ventures and funds.
Financing is a significant component of most transactions, and can involve sophisticated structuring, capital markets transactions, mortgage and mezzanine loans, debt restructurings, private placements, sale and leaseback financings, governmental incentives and tax aspects.
Another branch of real estate is land use, which requires attorneys to advise on state and local laws, such as zoning regulations, which affect the behavior and development of the real estate market. There are also aspects of real estate work that sometimes require advice on tax, litigation, restructuring and bankruptcy, and environmental law.
What lawyers do
- Draft a letter of intent, which sets forth the basic parameters of a transaction.
- Conduct due diligence. Make sure what the client is purchasing or underwriting holds no unwelcome surprises.
- Obtain municipal and/or state approval, where needed. Negotiate the contract, which allocates responsibilities among the parties.
- Negotiate financing documentation.
- Close the contract, joint venture and/or financing.
Realities of the job
- According to Sullivan & Cromwell chairman Joseph Shenker, there are three aspects to every deal: “Of course you have the legal element, but on top of that there are the business and psychological elements to take into account.”
- Typical clients include developers, owners, institutional investors, lenders, tenants, underwriters, pension funds, insurance companies, private equity and hedge funds.
- Working in real estate requires sensitivity to each client's needs and expectations. While private clients are motivated by profit margins, the public ones are driven by policy and politics. Lenders tend to be cautious in their approach, while developers are bold and visionary. Harmonizing parties' competing goals can be tricky.
- Real estate is cyclical by nature. When the economy is bad, the real estate sector is often adversely affected. This means that "if you have skills to put a deal together, you should also have the skills to take it apart – if and when it gets into trouble," says Dechert partner Laura Ciabarra.
- A transaction is truly a team-oriented affair; there will always be more than one attorney working on the deal. As such, having the ability to collaborate well with others is a must, in addition to coping with the stress of deadlines.
- "In the week or so leading up to the completion of a deal, you'll probably find yourself in the office every day working until midnight," Ciabarra explains. "I don't think I've ever worked on a transaction without there being that final week or two of craziness." However, she describes real estate lawyers as "deal junkies" who thrive hectic nature of the closing stages, with everyone pulling together to reach a successful conclusion.
- Real estate lawyers tend to have a variety of projects in hand at any one time, which requires exceptional organizational skills.
- The work is often highly tax-driven. When it comes to the more complex transactions, understanding the relevant tax goals and limitations is particularly useful.
- Unlike corporate lawyers, who may have no more than a compute file to mark the end of a deal, real estate lawyers have a physical result that can be seen, touched, visited, lived and worked in.
Over the past few years, COVID, international matters and an impending recession has caused interest rates to rocket and in2023 interest rates topped 7%. According to CBRE, the Fedis unlikely to reduce this until inflation returns to their 2% target. High inflation typically leads to higher costs for borrowers and more conservative lenders.
Commercial real estate is also being hit by the rising interest rates, CNN recently reported that Blackstone saw shareholder profits dip significantly (36%) within the year. They indicated this is due to its real estate investmentsdecreasing in value, asBlackstone is the world’s biggest owner of commercial real estate.
But an avenue COVID opened for the real estate market was its digitization. To adapt to new nature of the no in person meetings, businesses had to rely on technology to help with purchasing. This has created opportunities to purchase land or property without needing to see it in real life, exposing more sales to not just local buyers but those across country or even international, accelerating the whole process.
In December 2022, research by US News Housing Market Index found that the most attractive housing markets were in North Carolina, Colorado and Texas. The research also found that the most resilient markets were in Salt Lake City, Dallas, Tampa and Florida over a one year period from December 2021.
According to PwC, the identified markets to watch in 2023 are Nashville, Dallas/Fort Worth, Atlanta, Austin and Tampa/St Petersburg. The research also found home building is hot in areas like San Antonio, Raleigh/Durham, Tampa/ St Petersburg, Austin and Charlotte.
Advice from some top real estate lawyers:
Jon Mechanic, partner and chairman of the real estate department, Fried Frank:
“Students interested in New York real estate should read The Wall Street Journal’s Property Report on Wednesdays, Charles Bagli’s pieces in The New York Times, Steve Cuozzo’s column 'Realty Check' in The New York Post on Tuesdays and Lois Weiss’s column 'Between the Bricks' in The New York Post on Wednesdays.”
Laura Ciabarra, managing partner of the Hartford office, Dechert:
“You need to deal with a lot of information, but you also have to enjoy feeding off the energy of having a deadline and not getting thrown off track when a hiccup occurs – which often happens. You certainly need to be comfortable with thinking on your feet. Also, you can't be afraid to jump in and learn the business side of things because that's a very important element.”
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and man-aged with reasonable care, it is about the safest investment in the world.”
Franklin D. Roosevelt