Law Times

LAW TIMES / JUNE 16, 2008 FOCUS Economic cooling means shift in direction BY HELEN BURNETT Law Times A s economic conditions are cooling off the boom of the last few years, On- tario's commercial real estate lawyers are dealing with subject matter that many haven't dealt with in over a decade — and that some have never seen. According to recent statistics from RealNet Canada Inc., the volume of commercial real estate sales in the Greater Toronto Area was down 18 per cent in the first quarter of this year, compared with the last quarter of 2007 and six per cent on the first quarter of last year. While the number of transactions in offices, apartments, and residential land were up on the previous quarter, industrial, retail, industrial-commercial, and institutional were all down. Jeffrey Lem, a partner in the real estate group at Davies Ward Phillips & Vineberg LLP in To- ronto, says he sees all the signs of a classic slowdown. "Certainly in my shop, we've been running off our feet for lit- erally years now, it's been years since anyone's even breathed," he says. The end of 2007, he says, was the first time lawyers were able to regularize their workload in the commercial real estate practice. While the firm has a little more breathing room than it has had in the last few years, many of its clients are governments or P3 projects, which go on unphased, or pension funds that don't need to borrow money to make acqui- sitions. While some areas of the busi- ness may be remaining steady, what Lem is also seeing is that he is "getting a lot more inquiries from the bankruptcy guys," he says. All of the old issues of what happens in an insolvency, in a filing, and what do you have to register on title are being asked again, he says. Lem points to some of the re- cent CLE topics, including a re- cent sold-out law society program on mortgage remedies. "When was the last time we saw mort- gage remedies; that's the thing that people are just dying to remember. Nobody knows how to do a power of sale anymore, but they're always asking, 'Foes anyone know how to do one of these?'" he says. Jim Hilton, chairman of the real estate group at Blake Cassels & Graydon LLP, says lawyers are starting to see some defaults on commercial loans. "That could be another source of work or business for commercial real estate lawyers who are up to speed on mortgage remedies, and there really was very little of that type of work for the last 10 years," he says. "There's starting to be a few; don't know if it's just going to be a trickle or whether it's going to become more of a trend," he says. The last time these types of is- sues were prevalent in this area of law, says Lem, was 1992 to 1995. "You have lawyers who have re- ally been called to the bar well over 10 years now, partners in law firms who have never done power of sale, never seen foreclo- sure, never seen mass bankrupt- cies," he says. Financial Strength Ratings: Demotech, Inc. A" | Fitch Ratings A+ At Stewart Title, it's how we work that sets us apart. We deal in title insurance and related products, undertaking no part of the transaction that has traditionally fallen to legal professionals. Since our inception into the Canadian market, you will find that we have consistently combined comprehensive coverage with unparalleled support for legal professionals. We are dedicated to streamlining your practice and increasing your revenue through our programs and innovative technology solutions. At Stewart Title, we know it's our relationship with our customers that determines our success. That's why service is the foundation of our business and integrity, the keystone in all our dealings. Call us today or visit www.stewart.ca. Canadian Head Office (Toronto): (888) 667-5151 Atlantic Canada: (888) 757-0078 Western Canada: (866) 515-8401 Québec: (866) 235-9152 "There's very few of us who actually survived those days who are still around in the game, and I'm feeling very comfortable. OK, so we do foreclosure work, so we do power of sales," he says. Lem adds that this type of work is never as much fun or lucrative as real booming projects, and in- volves a retooling and change on the part of real estate lawyers. "As far as my guys are con- cerned, there's more breathing room, but we're still relatively busy, like nobody's worried yet, although I definitely do see it. I very much think this summer, we'll see a significant slowdown in new deals, because a lot of guys are still living off deals that closed at the back end of 2007 and have post-closing things to fix up," he says. "Once we get into the summer we'll realize that a lot of the real estate guys don't have big financ- ings coming up, don't have big deals and a lot of deals are stalled, and then that's when we're going to start seeing it," he says. always closely associated with bankruptcy," he says. Hilton says that he is seeing some slowdown in deal activity compared to last year, in part due to deal hesitation. "Some buyers are wondering is now the right time to buy, or if I wait, will prices go down a little bit further or not," he says. Those who previously would buy and highly lever their assets are not able to play in the mar- ket at the moment, he says, but this is not affecting the firm's main real estate clients — pen- sion funds and other institu- tional clients who have the cash to do the deals. While some areas of the busi- ness may be steady, Jeffrey Lem is also 'getting a lot more inqui- ries from the bankruptcy guys.' The upside, he says, which is mainly captured by larger firms, is that some of the lenders are get- ting a little more interested now as the spreads are much bigger. "The irony is real estate is This situation has also opened up opportunities for offshore clients to break into the Canadian market, says Hil- ton. "These funds are generally of the type that use conservative financing, so they might go 50 or 60 per cent loan to value, but no more than that, so this is work- ing to their advantage that there aren't as many sort of opportunity players there," he says. The federal government also repealed withholding tax on cross- border loans, effective Jan. 1, and a number of European lenders are finding it easier to do deals and getting more activity, he says. This has led to a new source of capital in the marketplace, he says. The returns that an investor or lender can get in Canada are also higher than in Europe, he says, which make Canada an at- tractive place for offshore inves- tors to put their money. "Even though there is some slowdown, there are reasons why we're not feeling the impact as much as perhaps other jurisdic- tions," he says. Hilton says he would expect things to pick up in the fall as those who are in deal-hesitation mode will be doing deals this year and are getting a feel for where the market is going. "They have allotments of capital to deploy and their goal and their business plan involves them spending that money," he says. LT PAGE 11 Untitled-6 1 www.lawtimesnews.com 6/10/08 2:30:18 PM

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