Law Times

Law Times • January 19, 2009 Focus On ainmaker_LT_June2_08.indd 1 5/28/08 10:43:29 AM REAL ESTATE LAW Lawyers undaunted by economy Silver lining brightens real estate gloom M BY DARYL-LYNN CARLSON For Law Times eagre holiday sales and manufacturing layoffs notwithstanding, the Canadian economy remains markedly stronger than its United States counterpart. So say lawyers whose practices are largely focused on facilitat- ing real estate transactions both residential and commercial; they are for the most part collectively relieved the subprime market im- plosion ravaging the sector south of the border has had a relatively mild impact here. If at all, any detectable down- turn in business serves as means to sharpen one's skill set and exert adaptability rather than languish with a depleting client list. "Things are not critical yet," asserts Steven Pearlstein, a real estate law specialist at Minden Gross LLP. "We will see declining house prices and there is a glut of condos that are coming online. If people don't have jobs this inevita- bly results in a decreasing [of] the volume of purchases and sales." But he points to the economic malaise 15 years ago that in Cana- da had a signifi cant impact on the real estate market, spawning the emergence of insolvency as a dedi- cated practice area of law. In the current downturn, which hasn't been offi cially labelled a re- cession, perhaps the most notice- able change has been an evident dearth of lenders, says Pearlstein. "In the commercial market, banks are lending but more strictly enforcing their lending criteria," he says. Mortgage-backed securities are no longer a source of funds as a result of market conditions south of the border, and many of the other traditional real estate lenders are sitting on the sidelines as a result of asset allocation re- quirements, he says. "So it feels like people aren't lending." Pearlstein says he expects it will be another year before such lenders resume activities in real estate investments although that's not necessarily going to have a detrimental impact to any measureable degree. Even foreclosures aren't poised to ravage the market as severely as they have in the U.S. Pearlstein recently delivered a continuing education seminar for lawyers on mortgage enforcement and observes "in Ontario it hasn't gone crazy yet. Historically, there are a lot more defaults than there used to be, but I think overall it's not that huge a factor just yet." He doubts that mortgage de- faults will ultimately become a driving force behind an economic implosion as it did during the 1990s, although Pearlstein doesn't dismiss the impact soured real es- tate deals could have cumulatively over the coming year. At another continuing educa- tion session hosted by the Ontario Bar Association scheduled for June 9, Pearlstein will preside as chair- man in a discussion entitled Re- structuring Distressed Real Estate. The program will address sig- nifi cant changes in the law and practice that have occurred in re- cent years, and moreover will pre- pare lawyer attendees with analysis and strategies to properly advise clients and guide them to take the appropriate steps to meet their concerns. "As the fl ow of real es- tate transactions has decreased it is even more important to broaden your practice and gain the poten- tial to generate new fi les in this ex- panding area," Pearlstein writes in an outline describing the session. In this vein, he emphasizes the need for lawyers to be adapt- able and enhance their expertise 'Things are not critical yet,' says Steven Pearlstein. beyond basic property conveyance. "Lawyers, even those who have experience in real estate, really don't have that multi-discipline ability to think on both sides and see how they fi t together," he says referring to insolvency and restructuring. Douglas Klaassen is a partner at Stikeman Elliott LLP's Real Estate, and Structured Finance and Financial Products groups and has morphed the focus of his practice to adapt to market changes over the years. Although he began doing basic real estate work, he soon migrated to concentrate on commercial transactions, then commercial mortgage lending and in recent years became one of the fi rst lawyers in Canada to plug into mortgage-backed securities and mortgage securitization. Amid the current downturn, Klaassen again retooled his prac- tice in a move back to more tradi- tional real estate work. "Diversifi cation is important," he says. "The tendency towards specialization can only go so far and the broader range your skill set is the better off you'll be." He too is optimistic that the economic impact of world fi nancial markets won't be as detrimental to Canada's economy as in the U.S. "Unlike our American friends, I think the impact of this recession will be relatively benign in this country compared to south of the border," says Klaassen. He notes that U.S. lenders are moving towards recourse lend- ing and lower leverage "which is what Canada has been doing for the last 100 years." There are also opportunities for the emergence of private lending funds, such as the new KingSett Canadian Real Estate Income Fund LP, that will fi ll the gap of other lenders who are either currently sit- ting on the sidelines or tightening their credit requirements. "Someone is going to have to come in and take their place and whoever comes in and sets this up is going to see a tremendous re- turn," says Klaassen. "We look like a safe haven compared to other countries. Going forward I think Canada will continue to be viewed as a good place to invest and I expect there will be renewed interest in that" once current market appre- hensions subside. In sum, Klaassen says the down- turn ultimately will have an upside in the long term and his prognosis for real estate is optimistic. "There's no systemic Canadian real estate problem. The bad news is that our major trading partner has a sys- temic real estate problem and until they work that through and decide how much damage that's done to their economy, we're not going to know what consequential impact that will have on the Canadian economy. But I think it's going to be an interesting year." LT New definition is narrow, say lawyers E BY DARYL-LYNN CARLSON For Law Times ffective next month, real estate developers will be added to the list of parties and insti- tutions that are subject to requirements un- der the federal Proceeds of Crime (Money Laun- dering) and Terrorist Financing Act, or Bill C-25. The Bill, originally passed in 2001 and amended to expand its jurisdiction in 2006, is administered under the Financial Transactions and Reports Analysis Centre of Canada. Its ex- tended jurisdiction over developers, effective Feb. 20, means most real estate lawyers will need to January Specials Visit our Web site and save 20% Understanding the Commercial Agreement to Lease, Second Edition Harvey M. Haber, Q.C, LSM The Commercial Lease: A Practical Guide, Fourth Edition Harvey M. Haber, Q.C., LSM Assignment, Subletting and Change of Control in a Commercial Lease: A Practical Guide Editor: Harvey M. Haber Q.C. and contributing authors Ontario Real Estate Legislation, 2008-2009 edition Consulting Editor: Howard Shuster (standing order only) PAGE 9 familiarize themselves with the law to be able to thoroughly serve developer clients. According to the new law, a developer is by defi - nition any client who has overseen the construc- tion, or sold or purchased at least fi ve new houses or condominium units — or just one new commercial or industrial building — inside of a calendar year, which perhaps broadens the potential client base be- yond the notion of a traditional, real estate tycoon. "Once you're defi ned as a real estate developer you're always defi ned as a developer," points out Sylvia Adriano, a partner at WeirFoulds LLP. "So if you sell fi ve houses in one calendar year, See Law, page 10 www.lawtimesnews.com Web Discount (LT 1-4x5).indd 1 1/14/09 11:15:40 AM

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