Abe Schear of Arnall Golden Gregory analyses the developments in the US real estate market and discusses the impact this will have on firms practising in the sector:
“Attorneys and firms can of course remain local (or regional) and each firm should follow its business plan, but failing to think globally and anticipate changes will likely in some instances result in lost opportunities.”
While we debate the political impact of fast-paced international events, and are often frustrated and even repulsed by the stories which occur all over the world, we fail, in many instances, to analyse how these events impact the global real estate market and, in particular, the day-to-day needs of our clients, both current and prospective.
If we scroll back just 10 years, we had flip phones, nascent internet information, a world where information travelled much quicker than before but certainly not like today, and nothing like Google Earth. Added to that, most foreign real estate companies had little visible presence in the United States (other than some from Germany and Japan, for instance). And, though we laughed about it, global partners often saw the United States as New York and its colonies: Boston, Chicago, Los Angeles and Washington, DC. Most investment was in trophy-style office and/or residential buildings. In fact, the price for US real estate was very high and the currency exchange rates significantly more unfavourable for international buyers than today. The world was generally an open market. There was robust investment in Europe (East and West), China and, to an extent, Africa; and there was interest in South America. There was cash and it was far easier to acquire assets than it is today.
Now, looking forward just 10 years from that point, we find widespread uncertainty in Western Europe, an Eastern European market that was truly disastrous for many investors, a much more uncertain and confusing Chinese market, perhaps less interest in Africa, and a belief that South America, as a market, is far away – in time, distance and language. All of this is at the same time that investors have considerably more money and, in some cases, money which needs to be invested for both certainty and safety.
When looking at money that was being invested in Eastern Europe or in the Middle East (net of Israel), for instance, where can these funds be invested? Equally relevant, if one could monetise investments in countries like Egypt or Syria, in Ukraine or even in Turkey, a disproportionate (ie, against historical averages) amount of the investment dollars would likely flow toward assets offering enhanced security, as opposed to yield alone.
From a law firm’s perspective, this transitional market offers great opportunity, particularly for law firms that still embrace real estate (of which there are fewer and fewer each year). Large law firms, and particularly global law firms, have clearly found that routine real estate matters such as leases and closings are not sufficiently profitable and are too fee-sensitive, and these firms do not, in many cases, elect to focus on such “marginal” work. It is, in addition, difficult to find strong real estate lawyers for multiple offices. While these firms will, of course, handle real estate for established large clients, real estate work for real estate clients is not generally a sweet spot for the largest law firms.
Of course, this reduction in expertise has allowed more specialised firms to fill in the gaps and that is a story in itself. In fact, firms that specialise in real estate can and should introduce their international friends to their domestic clients and contacts, an old-fashioned and very successful way to differentiate a firm from its competition while adding value to all relationships. Burgeoning international investors – those with substantial money to invest – in many cases have little knowledge about non-core assets and little understanding of professional service providers and what can be accomplished (or not).
Equally important, global firms by their definition focus on global companies while firms with international interests may focus on just a few countries (and/or just a few products). This focus, this commitment, allows the much smaller firms to distinguish themselves, to make new key relationships and to better explain their marketing plans and initiatives to their contact base, offering a very creative and exciting story.
As one who has both bought and sold legal services, the hardest component to deal with is the why. Why is the firm more qualified? What can the firm offer that is different from others? These are, of course, tricky questions as competence is not easily ascertained or proven. Yes, in some instances, contacts and deal history can be impressive and price can be critical, though work gained solely by price differentiation is often later lost for the same reason.
In today’s market, offering “opportunity” can really seal the deal, educating the client about new ideas, capital or information. Clients want to see dedication to the practice, passion for the work and, if those are there, in most cases, clients are willing to be educated. And good companies should always aspire to “best in class” counsel.
Yes, the market has changed in the last 10 years and the real estate market is likely to become even more global with natural ebbs and flows regarding positive and negative markets. Attorneys and firms can of course remain local (or regional) and each firm should follow its business plan, but failing to think globally and anticipate changes will likely in some instances result in lost opportunities.