Many firms seem to view real estate as secondary in importance after corporate and private equity work when looking to increase profitability. In New York City, however, it is a missed opportunity, and some Am Law firms are proving exactly that.
The law firms, Holland & Knight, Akerman, Vinson & Elkins, Sheppard, Mullin, Richter & Hampton, and McDermott Will & Emery all have something in common: They are all non-New York based firms that have added significant groups to their real estate practice in New York in the last 18 months. Many firms seem to view real estate as secondary in importance after corporate and private equity work when looking to increase profitability. In New York City, however, it is a missed opportunity, and some Am Law firms are proving exactly that.
Why a Strong Real Estate Practice Matters Although New York may be known best for corporate legal work, real estate is not far behind. Despite modest declines in recent years, the New York City real estate market is solid and appears to be improving. Increases in investment sales, office leasing, mergers and acquisitions, competition among lenders and other matters have provided steady work for real estate attorneys in the last year. As reported in The Real Deal’s 2018 survey, the top 10 New York City real estate practices worked on nearly $25 billion of lender-side loans and nearly $14 billion of borrower-side sales. In addition, there were 1,117 real estate lawyers working at the top 20 firms, up nearly 7 percent from 2017 and more than 11 percent from 2016. The New York real estate market represents a lucrative practice area that generates significant revenue on its own, but even more so when you consider how it leads to other business for a firm. While the Am Law top 10 firms may not feel the need to focus on the strength of their New York real estate practices, the rest of the top 100 can benefit substantially by concentrating on this market to fuel their growth. As is common with many industry groups, real estate has the ability to spin off substantial additional revenue to other practice groups, such as tax, corporate, litigation, etc. This benefit was noted by Vinson & Elkins’ chairman Mark Kelly when discussing the firm’s recent addition of 15 real estate attorneys and staff. He stated, “the addition of this team is a natural complement to our broader transactional group and will be beneficial to the firm and our clients as we continue to grow in a variety of practice areas in New York.” In addition to leading to more business for law firms, a strong real estate practice also gives credibility to those outside the Am Law top 10 competing in the New York market. In particular, those firms based outside New York can demonstrate their commitment to New York with a solid real estate practice. This point was echoed by Joe Guay, the leader of Holland & Knight’s national Real Estate Section when announcing five new attorneys to their real estate leasing group. “The addition of this outstanding group of lawyers further expands the services that our New York real estate practice can offer clients, as well as enhances our reputation in this key market.” Competing in the New York Market Many top Am Law firms look to their corporate practices for growth, including representing private equity companies and financial institutions. That is not surprising given these practices command the highest rates and can be tremendously profitable. Real estate work generally does not command the same billing rates. As a result, they can be neglected by these firms providing an opening for other Am Law 100 firms to step in. These firms can offer a wealth of benefits to real estate clients and partners considering moving their business. Among the advantages of a real estate practice is that it is often significantly more portable to another law firm, as opposed to traditional corporate work for public companies and similar institutions. Those clients are hard to acquire and not likely to switch firms when a partner leaves. However, many real estate clients are loyal to their attorneys, even as executives change employers, or develop off-shoot businesses. While these clients want their legal work done by a well-regarded law firm, they are often most concerned about working with top-notch attorneys. Pejman (Pej) Razavilar a real estate partner at McDermott Will & Emery said “Over the years, I’ve seen many clients move to other companies as well as start their own businesses to pursue a more entrepreneurial path and continue to use prior counsel they trust and have regularly relied on.” For a real estate partner or practice group who may be looking for new opportunities, the portability of their practice enables them to seek out firms that can offer them a highly visible and important role in the firm’s growth strategy. Law firms like Akerman with its top-rated real estate practice are not simply adding real estate attorneys in New York, they are acquiring specialized and highly credentialed partners and putting them in key positions. Competing in New York City is not easy. The law firms that will be the most successful are those that achieve a critical mass. A few partners do not make a real estate practice. To establish credibility, firms must commit to building a team capable of handling all aspects of real estate transactions and litigation. Even firms like Sheppard Mullin which may be less well-known in real estate, are focused on building their credibility by bringing in partners with “outstanding East Coast real estate credentials” with a specialized practice that complements the firm’s existing strengths in real estate. The benefits of a strong fully developed practice also includes helping firms demonstrate they can serve their global clientele where and when they need assistance, which is often in New York. At McDermott, Jeffrey Steiner, global head of the firm’s Real Estate Finance Group, commented that “As market demand increases at the intersection of real estate and finance, [our New York partners] will enhance our unique position to serve the growing needs of both foreign and domestic institutional clients in highly sophisticated transactions.”
An Alternative to Merger or Acquisition It is notable that the firms mentioned in this article are adding real estate groups that provide a strategic fit for the firm. For instance, Holland & Knight New York Real Estate Practice Group leader, Stuart Saft, emphasized how “[o]btaining a significant commercial leasing practice … has been a strategic priority, … complements our existing strengths and will be an important driver of our future growth.” Such carefully chosen expansions have the power to be a viable alternative to a merger or acquisition in enabling firms to achieve significant growth. Acquiring key real estate practice groups offers tremendous potential for law firms looking to increase revenue, particularly in the New York market. Best expressed by Cliff Thau, co-head of Vinson & Elkins’ New York office, “Expanding V&E’s breadth of practice in New York is an important part of our overall growth plan, and we are committed to strategically expanding here and across the firm.” This should be an impetus to other firms. In addition to competing for corporate work, concentrate on building a strong real estate team that will provide the foundation for your long-term success in the New York marketplace. And if you are a real estate partner, do you feel your firm has shown commitment and is trending towards being a powerhouse in real estate? If not, consider taking the headhunter’s call. Ross Weil and Keith Fall are partners with the New York-based legal recruiting firm, Walker Associates. They can be reached at RWeil@walkersearch.com and Kfall@walkersearch.com, respectively.
Originally Published in the New York Law Journal