We have created a Real Estate Practice Group with unparalleled skill and expertise that crosses the entire gamut of the real estate legal field.
This Practice Group is one of the largest in New York City and one of the most highly regarded in the United States.
- "Money" partner's counsel
Perhaps this is what the Firm's Real Estate Group is known for more than any other specific area. There are particular issues that concern a party providing equity capital in a real estate transaction. Some of these are obvious — i.e., who controls making capital calls, who controls major decisions, etc. But some are not nearly as obvious and only become apparent when things start to go wrong. For example, if the Money Partner only has the right to remove the Operating Partner as managing member of the co-venture for "Cause" and the transaction goes into default with the lender, it may take years in court to win on the "Cause" issue, at which time the property will have long since been lost to the foreclosing lender; accordingly, an unknowledgeable Money Partner may find itself at the mercy of the Operating Partner in this situation if the Money Partner has not thought ahead and put appropriate protections into the documentation. Indeed, it is in precisely these types of transactions in which the presence of competent counsel (versus a neophyte) can make an enormous difference to the client. Our Real Estate Group has been responsible for hundreds of transactions in which we have represented the Money Partner's interests and we are well-versed in these issues. Indeed, although statements of this ilk are difficult to verify, we believe we are at the top of a very small group of United States law firms in this area.
- Operating partner's counsel
We have developed a significant practice representing Operating Partners and, indeed, we believe that we have a significant negotiating advantage in these circumstances because we know well in advance what the other side (the Money Partner) is thinking and cares about and will ultimately permit.
- Preferred equity transactions
This is really a subset of representing the Money Partner or the Operating Partner in a transaction in which the equity investment (or a portion of the equity) has a preferred return feature. There are numerous issues here where having experienced counsel is of critical importance, such as what happens under the document if the preferred return is not timely paid or if there is some other default. Our Real Estate Group has negotiated numerous preferred equity transactions from the point of view of both the Money Partner and the Operating Partner and is well-versed in these issues.
- Ground lease transactions
Ground leases are fraught with peril for the unsuspecting client. Indeed, a ground lease is (in many cases) sort of like a loan that cannot be repaid even if there is a default. This gives rise to a truly horrible possibility; namely, total forfeiture of the client's rights if the ground lessor terminates the ground lease. A second risk (not quite as bad as the first but pretty awful if it comes to pass) is that if the ground lease does not contain the "magic words" that the ground lessee's lender would like to see, then the ground lease could be unfinanceable, which significantly decreases the value of the ground lease. Due to the draconian downside of being "wrong" on these issues, particular expertise is needed to represent a client effectively in this area. Our Real Estate Group has represented its clients in numerous ground lease transactions and has thoroughly developed its expertise in this area.
- Complex development transactions
Some of the most difficult and tricky transactions to think through are transactions involving vertical subdivisions, reciprocal easement agreements, joint parking facilities, mixed-use condominiums and similar situations in which one property's development is dependant upon the next-door-neighbor's property (or the property of the neighbor above or below). The downside of erring is significant to the client, because if the documentation does not "work", then the properties involved may not be financeable — for example, consider a situation in which the client owns the upper portion of a property and the documentation is unclear on what happens if there is a fire that burns down the entire building, with the result being that the owner of the lower portion of the property does not have to rebuild (which of course makes it impossible for the owner of the upper portion of the property to rebuild). As is obvious, in this instance it will be difficult (perhaps impossible) to obtain a loan — much less find a purchaser — for the upper portion of the property. Our Real Estate Group has been involved in numerous transactions of this nature, prepared and negotiated extremely complex documents dealing with these issues, and developed a particular expertise in this area.
- Financings
– from the borrower's side
In these types of transactions, the lender starts with a big advantage — it has a form that it has likely spent years developing — and this form presumably protects the lender from every imaginable eventuality and has been blessed by an army of lawyers and internal lender personnel — and this form has been fire-tested in perhaps hundreds of transactions to plug up every possible hole — and yes, this is the reason that loan documents are so long; indeed, sometimes hundreds of pages of single-spaced text. The borrower is armed only with its lawyer and its lawyer's expertise in knowing what are the important points for a borrower to have in a loan transaction. Although there are many issues for negotiation, usually by far the most important is the negotiation of "recourse" issues and a law firm that knows what is "market" in that area has quite valuable expertise indeed. And, yes, we do have that expertise, having been involved in hundreds of loan transactions of almost every conceivable kind and nature aggregating tens of billions of dollars.
- Financings
– from the lender's side
While first priority mortgage lenders have a certain advantage in bargaining power, of all the parties involved in a real estate project, it is the mortgage lender that typically has the most funds at risk, and is therefore in need of the most sophisticated legal counsel. Having just added three new partners to our Real Estate Group with over 50 years combined experience representing institutional lenders, we have the expertise needed to both exploit the bargaining power our mortgage lending clients enjoy and to eliminate, or at least greatly reduce, the potential risks that they are exposed to. It is our belief that smart lender's lawyers not only understand their client's positions but also those of their borrowers. Our experience representing borrowers and ability to be creative lawyers that "think outside the box" allow us to craft solutions for our mortgage lending clients that protect their interests while simultaneously accommodating their borrower's concerns. Additionally, our ability to offer our expert services at lower billing rates than our competitors, as outlined previously, allows our mortgage lending clients to pass these savings on to their borrowers in the form of lower closing costs, thereby allowing them to become a more attractive funding source for prime developers. Because of our extensive experience with and expertise in handling distressed debt, workouts and restructurings, from the outset of a new loan transaction we can offer superior advice to a mortgage lender on how to avoid many of the pitfalls that might result in its loan going into default or that might hinder its ability to fully realize the value of its collateral once a default occurs.
- Mezzanine financings — from the lender's side
Although the first lien lender starts with a big advantage (noted previously), the mezzanine lender often is beset from multiple directions. Not only are there the obvious difficulties in negotiating with the borrower, there are also sometimes even greater pressures and demands from the first lien lender. The first lien lender often views the mezzanine lender as a potential threat (e.g., in an insolvency situation) and a thorn in its side (e.g., should major decisions need to be made about the borrower, the mortgage loan or the mortgaged property). With these concerns in mind, the first lien lender will attempt to drastically limit the mezzanine lender's ability to interfere in these matters. Often the trickiest and most difficult part of these transactions is negotiating intercreditor or other arrangements with the first lien lender. Through a combination of superior leverage and reliance on what it deems is the "industry standard," the first lien lender can be quite tough in the contentious negotiations of these intercreditor agreements that serve as the basis of the relationship between the first lien lender and the mezzanine lender. Additionally, failure to come to terms on key provisions of these intercreditor agreements can result in substantial delays in funding a project as well as an increase in transaction costs and general animosity amongst the borrower, first lien lender and mezzanine lender, all of which can drastically diminish their chances of working together on future transactions. Our strength and depth of experience in representing borrowers and first lien lenders enables us to appreciate their concerns as much as our mezzanine lending clients' concerns in these prickly matters and allow us to help smooth the choppy waters of these difficult relationships through understanding and compromise rather than stubborn insistence and recalcitrance. To be unsubtle, we are an excellent choice to represent the mezzanine lender due to the fact that we possess the creativity and other skills necessary to effect compromise where it demands and to help preserve and protect the rights of our clients at all times while achieving the best possible result.
- Distressed real estate
– restructurings and workouts
There are few situations in the business world that invoke both fear and excitement more than distressed real estate.Whether you are an unfortunate victim or an investor seeking an above-average return arising from the matter at hand, there are numerous pitfalls for the unwary and enormous upside for the careful player. This is an area where brilliant lawyering can play a dramatic role in a client's success or failure. Over the past decade the Firm has positioned itself to be the ultimate law firm for distressed real estate by acquiring and training knowledgeable and talented lawyers in the critical areas for distressed real estate; namely, real estate, bankruptcy, litigation and structured finance. The current state of the real estate capital markets requires creative solutions for the disposition of distressed assets, sound advice on evaluating new opportunities and overall legal guidance.We have been preparing ourselves for years for just such a real estate downturn to be in a position to use our skills for our clients' benefit. We are quite well-versed in all of the tools and techniques used in real estate financings (such as springing guaranties; exploding guaranties; enforcement issues surrounding non-recourse carve-outs; intercreditor (and subordination) agreements; foreclosure rights, claims and defenses; voluntary foreclosures; receivership proceedings; deeds in lieu of foreclosure; forbearance agreements; mezzanine loan enforcement; and prenegotiation agreements). Although there really are innumerable scenarios that fall within the ambit of "distressed real estate," all of these matters present difficult and complex issues requiring thought, analysis, judgment and often great creativity. Accordingly, lawyers possessing these skills can add enormous value. And, yes, that is exactly what the Firm is known for.
- Real estate capital markets
As noted previously, we are increasingly being called upon by clients who need help addressing current and future challenges posed by the distress in the capital markets. Our Distressed Real Estate Practice Group works in concert with our Structured Finance Strategies Practice Group, which combines our expertise in structured finance, real estate, litigation and insolvency, to provide legal and business guidance and market insight to clients that focus on capital market debt opportunities. Our attorneys have represented investment and commercial banks in the origination of mortgage loans intended for securitization and are thus well-equipped to review prospectuses, pooling and servicing agreements, trust indentures, intercreditor agreements and co-lender agreements. These attorneys have also represented various investment funds and financial institutions in the origination of mezzanine loans, in many cases with multiple tranches of mezzanine debt and with complicated intercreditor arrangements among the mortgage lender and various mezzanine lenders. With the number of securitized mortgage loans being transferred to special servicing predicted to reach record levels in coming years, there will be a continued focus on the workout and enforcement of troubled mortgage loans (including B notes) and mezzanine loans. We are uniquely qualified to analyze and evaluate the rights and remedies, and related risks, facing the holders of these types of debt. Our familiarity with complex, high-stress workout situations, coupled with our understanding of capital markets deal structures and strategies for investors and sellers of distressed assets, enables us to provide clients with comprehensive and innovative solutions as they navigate this new environment in search of opportunities.
- Leasing
Leasing looks easy — and indeed it is easy — if the desire is an average or below average job! All a tenant needs to do is sign the landlord's (overreaching) form — and all the landlord needs to do is have a non- expert lawyer put together the leasing form for a building — and trouble will no doubt ensue. Although there are risks to both sides in a lease, it is more likely that there will be risks to the tenant because, like the lender's lawyer, the landlord's lawyer comes in armed with a lengthy battle-tested document that is chockfull of landlord-oriented clause and the tenant's only hope is that it has retained competent counsel who is skilled in recognizing the various traps in the lease and negotiating a way out of them. For example, did you ever wonder what happens if the lights go out in your premises? Do you just shut down business, keep paying rent and hope the lights go on again? We have developed a strong practice representing landlords and tenants in leases nationwide. Of particular interest is a niche practice that we have developed representing high-end clients in shopping center, industrial, office and other leases.
- Sale/leaseback transactions
Putting aside some specialty tax issues, some bankruptcy related issues under the general rubric of structuring for "true sale" treatment, and some issues pertaining to "triple net lease transactions," generally, a sale/leaseback is just what it says, i.e., the sale of the property from the seller to the buyer and the lease back of the property by the seller from the buyer. There are some sleeper issues here that we think are important, such as the following: since the sale/leaseback premises were previously owned by the tenant and not the landlord, it is important to include a lease provision that states that the premises are delivered completely "as is" and the landlord (buyer) has no obligation in respect of these matters. In addition, it is always tricky if the parties wish to sign the purchase agreement first and then negotiate the leaseback document afterwards; then, the question is when a fully binding agreement will really ensue.
- Portfolio transactions
Portfolio transactions are the same as acquisition or disposition transactions except that there are multiple assets involved — right? Wrong! As anyone who has worked on a portfolio transaction knows, there are extremely important business/legal issues that need to be negotiated, including, for example (and probably the most important issue of all), the right of the buyer to kick out the "dud" properties from the portfolio. The buyer wants this in the worst way; the seller wants to not give it to the buyer in the worst way. Well, let's say that the "deal" is that the seller wins, i.e., it is an "all or nothing deal." But then the contract says that the buyer has a right to object to title matters in its "sole discretion" and seller (as is customary) has a right to cure or the property drops out of the transaction. Well, if the seller agrees to that then the seller has blown it, for all the buyer has to do is object to uncurable title objections on the "dud" properties and then the seller cannot cure and then those properties drop out of the transaction . . . giving the buyer exactly what it wanted at inception. So, again, counsel trained in portfolio transactions is of critical importance in not allowing his client to fall into this kind of trap.
- Acquisitions
To be honest, these are not that difficult, if there is a single client acting as purchaser. Our Real Estate Group has led numerous (hundreds) of property acquisitions over the years — both single asset acquisitions and portfolios. The transactions become much more complex, tricky and interesting if there are multiple parties comprising the purchaser. Consider, for example, if there are two partners — A and B — buying Blackacre for $100,000,000 and putting down a $1,000,000 down payment — without even thinking deeply, one has to consider (i) who puts up the money for the down payment, (ii) if A wants to complete the transaction and B does not what happens (are they both stuck in the transaction or can one pull out), (iii) what happens if they go "hard" on the down payment money but cannot agree on the equity documentation between A and B, (iv) what happens if the seller defaults and A wants to walk away and B wants to pursue remedies, etc. Fortunately for us, almost all of our transactions have involved multiple parties — usually a Money Partner and an Operating Partner — so we know these issues very well.
- Dispositions
Probably these are the easiest of transactions. The seller usually controls drafting — and we have developed an excellent form that protects the seller's interests. Still there are some issues of critical importance some of which are: (i) the importance of making clear that if the seller defaults pre-closing, the purchaser's remedies are limited (i.e., the purchaser cannot sue the seller for unlimited damages), (ii) if the seller defaults post-closing (e.g., a representation turns out to be false), there is a maximum cap on the liability of the seller and the purchaser, again, cannot sue for unlimited damages, and (iii) there is a specified time period during which the purchaser can make a claim against the seller after which all claims are time-barred.
- Different property types
From the lawyer's point of view, it is a bit of a secret that the documentation is quite similar for transactions pertaining to retail, office, residential, industrial, mixed-use, etc., so there really is not a lot of differentiable expertise that would pertain to the different property types. Nevertheless, there are special issues that pertain to each property type. For example, consider the implications of hundreds of one-day occupants (hotel), hundreds of one year occupants (residential apartment complex), or less than thirty ten year occupants (office property); in the first two situations, it would be illogical to ask for an estoppel from the occupant; in the third situation, it would be illogical not to. Our Real Estate Group has been responsible for transactions encompassing almost every imaginable property type and, accordingly, is quite familiar with these issues.
- Hotels
We have represented clients purchasing, selling, financing, lending upon, and restructuring hotels. Although there is certainly overlap between hotels and other real estate transactions, there are certain hotel-specific matters that are important: (i) one needs to be aware of the issues that are (and are not) negotiable in negotiating management agreements and franchise agreements with major hotel companies, (ii) one needs to understand how to ensure that a liquor license is (legitimately) in place at the closing, (iii) one needs to be aware of hotel operation transition issues, which can be costly if ignored, and (iv) one needs to be well versed in how employee issues and risks weave into the transaction itself. Thus, it is again critical for a client to have counsel with hotel expertise when the client is dealing with a hotel.
- Condominium hotels
If one wants a complicated set of issues, consider those attendant upon a property that was solely a hotel and is now being modified to have some condominium units that are carved out of the hotel property, but also continue to be serviced by the hotel. There are an awful lot of issues. Consider, for example, and most basically, if you purchase a condominium unit in the hotel presupposing (and indeed paying more) because you believe you will "always" have a hotel to use, but then the hotel gets into trouble and decides to stop operations or wants to convert itself completely to condominiums, etc. There are a long list of things to be concerned about from the point of view of the hotel unit owner and the condominium unit owners arising from this single issue. And there are many more. And to make matters even more worrisome, even if the issues are resolved well enough for the various owners, their lenders will be much more stringent in their respective requirements and if the documentation is not satisfactory the result may be unfinanceable ownership interests (which is of course a disaster). Accordingly, an expert attorney will make a big difference in these situations.
- Condominium conversions
Our Real Estate Group has not made a specialty out of condominium conversions. This is because a large portion of this work is both routine and steeped in local law (meaning that local counsel in the applicable jurisdiction is often best-situated to handle these matters). However (as with condominium hotels) there are issues of particular concern that our Firm typically reviews for its clients. These include pre-negotiating appropriate mechanisms in a pre-conversion property's financing to permit the smooth conversion of the property to the condominium regime and the eventual release of condominium units from the financing, as they are sold. Another item of concern is ensuring that the developer has sufficient control in the condominium documents to protect its rights throughout the conversion and sale process. Consider the foolish developer who sells out 100 units and still has 10 left to sell, however, the condominium documents permit a majority of the owners to amend the condominium documents and the holders of the 100 sold units amend the condominium's declaration in a manner adverse to the developer. In addition, even if a good portion of the "heavy lifting" is being done by specialist local counsel, it is vital that counsel that is intimately aware of the overall goals and priorities — including the particular client's "hot buttons" — oversees and quarterbacks those efforts to make sure that they dovetail with larger project goals, third party financing, equity structure, etc.
- Other specialty properties
Other specialty properties, such as resorts, nursing homes, call data centers, telco hotels, etc., sometimes contain special issues. Generally, we have found that these issues are similar to those encountered when dealing with a hotel property, i.e., in addition to the "real estate," one must also weave in issues pertaining to the operating business on the real estate. The deal is not purely a real estate transaction at heart. Our Real Estate Group has handled many of these transactions.
- Extremely complicated transactions
As noted previously, our tortuous (and even brutal training), our "can-do" and "will do no matter what" attitudes, and our abilities to think creatively as "business lawyers" — permit us to add enormous value for our clients. We believe our reputation in regard to the foregoing has "all" of our clients concluding that we are the correct — and sometimes the "only" logical — choice for transactions of this nature. In short, nowhere is this more apparent than in complicated transactions — especially extremely complicated transactions where it is difficult even to get one's arms around what is going on. This is quite simply because a super-complicated transaction is the ultimate test — where a truly great legal team can apply both its experience and its legal skills to guide the client to victory against the unexpected and difficult-to-prepare-against downside. We know we are being a bit presumptuous (hopefully we will be forgiven for this sin) in calling these transactions "D&S Specials." We believe our clients are unanimous in concluding that if there is ever a transaction in which use of our Firm is a must, it is transactions of this ilk.
- Transactions in virtually all U.S. jurisdictions
Unfortunately, we have been unable to find a transaction in Hawaii that required our presence at the closing itself (alas, all of our Hawaii transactions have closed through escrow). Despite this huge failure, our Real Estate Group is proud of the fact that it has completed transactions in all (or virtually all) U.S. jurisdictions, except (for some reason) Alaska. Although this sounds pretty "cool," to be honest, there is not a whole lot of difference in transactions between the different states (although each state has local law quirks to be sure).
- Foreign and cross-border transactions
We have a saying — yes another presumptuous saying — that our clients "should not leave the U.S. without D&S." The reason we say this is simple: each foreign jurisdiction has unique issues that are not readily apparent to U.S. clients or lawyers. Most obviously, in certain jurisdictions, U.S. entities such as partnerships and limited liability companies are not recognized with, the (likely?) result that the members or partners in these entities could be personally liable for the obligations of these entities. This is of course the opposite of what would happen under U.S. law. This is only one of many possible adverse consequences that may befall a client doing its first transaction on foreign soil. Of course clients often believe that the answer is to hire local counsel in the applicable jurisdiction and, of course, local counsel is indeed necessary. However, local counsel will (although knowledgeable about the jurisdiction itself) often be unable to appreciate which issues are important to the client. Our Firm will unearth these issues — from Korea to the Caribbean to Europe — and ensure that our clients will achieve proper protection or at least be aware of the risks that they are taking. In addition, there are numerous crossborder tax issues that go into the structuring mix. Someone quite creative and talented (often us) is needed to interpret the often Byzantine mix of U.S. laws, foreign laws, client structuring requirements, and U.S. and foreign tax laws in order to divine the structure that will be most appropriate for the client and the transaction.
