In a 2011 piece on the decimated real estate market in the City, we noted that few senior property partners were in their mid-40s, due to the fact that law firms largely ceased hiring junior real estate lawyers following the early ’90s crash. It looks like history will repeat itself in roughly 15 years’ time: post-credit crunch, the most established real estate practices went into hibernation. Some started to disintegrate. Either way, if you were a trainee interested in real estate around 2010, pickings were slim.
But, as we report in ‘Back in the game‘, real estate is back with a vengeance and some partners would have you believe it never really went away. The most popular line of argument is that there is a wealth of opportunity out there for City and national firms because the Magic Circle has been progressively retrenching in property for years.
The reality is more nuanced. While it’s true Clifford Chance, for example, has around 20 fewer real estate partners than in 2009 and Linklaters parted ways with some of its most experienced players over the last five years, both are unsurprisingly eager to proclaim their commitment to the practice area today. Linklaters, which has been the reluctant poster child for the much-touted accusations of real estate right-sizing by the Magic Circle, goes as far as to say the practice area accounts for 10% of revenues and it cited 35 real estate sector partners globally. It’s a very loose connection to real estate in some cases, with a glance at the firm’s website revealing head of the firm’s structured finance group, James Harbach, and the former global head of banking, John Tucker, among those listed as real estate partners.
But Linklaters won’t be the only firm to liberally count finance experts as part of its real estate arsenal, reflecting the reality that the Magic Circle essentially views real estate as, rather than a practice area, an asset class. Take, for example, the significant flood of private equity and other non-bank investors into the real estate sector to acquire distressed property assets. The Magic Circle would define these as significant property transactions that they’ve been at the forefront of. Ditto some cutting-edge securitisations. The underlying assets haven’t changed, but the type of client and structures have.
Berwin Leighton Paisner (BLP)’s Chris de Pury rightly points out that few firms can match his own for commitment to the sector, pulling in relevant service areas around real estate – planning, environment, finance and construction – but BLP is not the strongest at mainstream corporate finance work. Linklaters’ Andy Bruce says the nature of work in the sector has changed. Multijurisdictional deals with sprawling real estate asset portfolios are where his firm’s strength comes to the fore.
It suits firms with strong real estate pedigrees to perpetuate the view that the Magic Circle has little stomach for real estate work – historically, it is the only core practice area the Magic Circle hasn’t dominated outright. Ultimately, it is more than an argument over semantics, but rather of approach – do you service the deal or the client?
It is also about whether the approach by certain advisers to eschew commercial work for clients in favour of high-margin corporate deals is sustainable. The pressure to consolidate panels in some cases pushes firms in the opposite direction.
In the final analysis, whether you define such transactions as real estate or not is largely irrelevant if the work keeps coming in. Purists may take issue with that. If clients share the purist’s view, then the Magic Circle has a problem.