A review of the real estate market in its current state and the life of a real estate attorney
While traditional real estate practices focus either on real estate investment or finance, at Allen & Overy, our real estate team regularly represents clients on complex domestic and cross-border real estate investment and finance matters across all asset classes (i.e. both single asset and portfolio deals for a multitude of asset classes, including multifamily, retail, office, industrial and hospitality). Our practice represents world-leading financial institutions, corporations, REITs, hedge funds and private equity funds and encompasses acquisitions, sales, development, equity investment, finance, and the exercise of remedies for commercial real estate throughout the United States. Our real estate associates therefore develop a 360-degree perspective of all aspects of the real estate industry and are recognized for their commercial awareness and ability to more naturally find common ground acceptable to all parties during difficult negotiations.
A typical real estate transaction involves several stages and aspects of the law, including corporate law, contract law, real estate law, tax law, finance law and sometimes litigation. Our team regularly collaborates with other practice groups and offices outside the US to provide an integrated offering for our clients and brings all of these resources to bear in planning and executing on our matters.
Real estate is often acquired and held with a mix of debt and equity capital. The equity capital is obtained by bringing investment partners into the transaction (by way of a joint venture agreement) and the debt capital is obtained from a variety of institutional and private financing sources (by way of a suite of loan documents). The same institutional investors may serve as an equity investor in one transaction and may act as a lender on another transaction.
Real estate deals move quickly, often spanning just a few months, but sometimes closing within a week.
The financing arrangements that our team handles often go beyond simple mortgage borrowing and lending. Representing both borrowers and lenders, our team handles mezzanine financing (i.e. a form of financing where the shares in a company owning real property is the collateral, rather than the real property itself), preferred equity arrangements and loan-on-loan financing (i.e. loans made to lenders secured by loans in such lender’s portfolio). This diversity of experience has made our team a market leader and firm of choice for distressed loan/asset workouts, restructurings and foreclosures.
Recent trends
Real estate expertise continues to be in high demand. The real estate industry is notably cyclical. These cycles often correspond to changing interest rates and greater global economic trends. However, certain markets and asset classes may also be affected by particular industries that indirectly impact real estate investment. For example, with the fall of oil prices, real estate investments in energy sector dependent regions have started to depress. While many practices see a slowdown in legal work during these down markets, our group often gets busier. With a unique expertise in mezzanine lending and a proven track record on high-profile mezzanine loan foreclosures, our group is seeing an increase in workouts on distressed assets and foreclosures. While this may not bode well for some clients, others are opportunistic investors with the ability to use these down markets to their advantage. For the attorneys in our group, the down market further broadens their knowledge base, improves their drafting and enhances their ability to develop innovative methods to protect clients from worst-case scenarios.
What can new attorneys can expect to see?
Given the wide variety of clients, deal structures and asset classes to which attorneys in our group are exposed, no two days or deals are alike. Associates can expect to be involved in every phase of a transaction, including:
- Drafting and negotiating purchase and sale agreements, and real property transfer documents, such as deeds and assignments, leases and management agreements.
- Drafting and negotiating corporate formation and governance documents, such as limited liability company operating agreements, limited partnership agreements and by-laws for various types of entities, including property owners, joint ventures and other tax-driven structures and entities.
- Drafting and negotiating loan agreements, security agreements, including mortgages and pledge agreements, financing statements and other loan documents.
- Participating in meetings and conference calls with clients which address both the commercial and legal issues arising in the transaction.
- Performing due diligence in a variety of areas, including title and survey, environmental, leasing agreements and service contracts.
- Coordinating with attorneys in other practice groups where specialized expertise is needed.
- Coordinating with local counsel in domestic and international jurisdictions where a property is located to analyze relevant issues under local law.
- Reviewing and negotiating third party contracts for clients who are investing in a real estate project, including leasing agreements and service contracts.
- Managing the closing of transactions, including compilation and tracking of documents and deliverables and coordinating document execution and recording.
- Participating in marketing activities, such as attending lunches, dinners and events with current and prospective clients.
Real estate deals move quickly, often spanning just a few months, but sometimes closing within a week. This pace can be quite different from other transactional practice areas where transactions may take anywhere from several months to a few years. This expedited timeline provides associates with the opportunity to work on substantive aspects of transactions at early stages in their careers and to see a large number of deals in a short period of time. As a result, it is very easy for associates to gain extensive experience within their first six months and to get exposure to a variety of our group’s clients.
The learning curve for our real estate associates is steep. Due to the complexity of the transactions, as well as the high stakes and often short timeframes of these transactions, the associates who perform best in real estate tend to be those who are well organized, flexible and highly inquisitive. While much of the work is technical and requires strong organizational skills, all of the work is highly substantive and requires critical thinking and analysis from day one. Junior attorneys are thrown right into deals as soon as they start working and begin tackling issues and facing clients immediately. To that end, the more senior attorneys in our group work hard to ensure that even the most junior attorney understands the fundamentals of every transaction and to build his/her confidence and knowledge base as quickly as possible.
Private Equity & Investment Management