Law Times

Law Times • march 30, 2009 NEWS Recession hasn't taken big bite yet Commercial real estate lawyers get creative BY ROBERT TODD Law Times ommercial real estate lawyers say the recession has yet to take a major bite out of their practices, but note that a lack of easy financing has slowed the volume and size of transactions and forced them to get creative. "I've got one client who is a C relatively small player in the big scheme of things, but because they've got some cash in hand and would be able to do transactions, they're now viewed as a potentially significant purchaser," says Torys LLP partner David Dell. "That tells you something about both the degree of retrench- ment in real estate activity gener- ally but also the degree to which the size of the transactions has been impacted." A recent report by commer- cial real estate services firm CB Richard Ellis Canada offered some hard numbers on the im- pact the recession has had dur- ing the first quarter on commer- cial real estate vacancy rates. The report overall vacancy rates in Toronto rose year-over-year to 7.7 per cent from 6.8. In Ottawa, according to the report, overall vacancy rates rose to 5.1 per cent from 4.9. Dell, who is head of Torys' stated that total commercial real estate group, says those numbers are not a surprise to commercial real estate practitio- ners, who often feel the pinch of a downturn before other industries take notice. He says the slowdown in real estate activity began in the third quarter of 2008. "It has had an impact on prac- David Dell says the slowdown in real estate activity began in the third quarter of 2008. hit as hard as press reports suggest. He posits that the end of easy credit has led some to overstate the difficulty of making transactions. "It's harder to get the money to do the deals, but with some digging and if you have a qual- ity product, it can be done," he says. "I don't know how much of that is people's increased expec- tations because it was so easy to get credit. We had an overabun- dance of credit compared to what would be the norm." Dell says practitioners are your first experience with a pro- fession is against the landscape of work. But he notes that it's a potentially long career and urges such lawyers to hold tight. "It's easy to get dissuaded if of a recession, because you won't find the opportunities you oth- erwise would in a robust mar- ket," says Kapsales. He notes that "inevitably things turn," and advises such lawyers to build for the future by networking with clients, getting involved with professional orga- nizations, and enhancing their skills through continuing legal education opportunities. LT When it comes to IP in Canada, We're Well Read Ridout & Maybee LLP: Editors of the Canadian Patent Reporter keeping active thanks to refi- nancing opportunities and dis- tressed mergers and acquisitions involving "significant amounts" of real estate. What has yet to be seen, he says, is the same level of bankrupt- cies and insolvencies for real estate- related enterprises as experienced in the late 1980s and early 1990s. He notes that governments tices of real estate lawyers around [Toronto], although to different extents at different shops," he says. Dell says that he and colleagues at other large firms are noticing a decline specifically in high-end transactions. That can partially be attributed to historical consolida- tion in the real estate industry, in- cluding the acquisition of "trophy properties" by pension funds, he says. Such funds are inclined to hold those assets, he says. Activity has continued at the it all starts somewhere www.ridoutmaybee.com PAGE 3 have announced significant sup- port for infrastructure projects, which has prompted many law firms to diversify their real estate practices to include infrastructure, viewing it as a growth opportunity and area to grab "significant, com- plex, interesting work with high- dollar volumes in the future." Dell says he's fortunate to have mid-market and lower-market levels, says Dell, adding that the bulk of transactions are now at the $25-million level or below. Tom Kapsales, a partner in Cas- sels Brock & Blackwell LLP's real estate practice group, says real es- tate is a "very organic environment, and it's very difficult to generalize in a wholesale basis on your indi- vidual day-to-day basis" on how the industry at large is faring. But he notes that the topics currently discussed at confer- ences and in publications are generally tackled only during recessionary periods. At a re- cent conference, for example, Kapsales was asked to talk about co-tenancy agreements. "Nobody pays much attention to those clauses or requests those types of clauses when things are going good, but when things go bad, people start to think about clauses like that," he says. Minden Gross LLP commer- cial real estate lawyer Steven Pearl- stein says the market has not been a relatively conservative client base that has been able to carry on dur- ing the downturn, but not neces- sarily on real estate transactions. He foresees "quite an extended period where real estate activity will be in a significant lull," and doesn't expect a rebound this year. "Beyond that, it's too far out to speculate, I think," says Dell. Kapsales says a number of areas will open up for commercial real estate lawyers during the down- turn. Creative deal making will likely become a trend, he says, as excess office space comes into the system and landlords have fewer potential clients to quickly fill the void. "Given that the obligations under some leases are much larger than what people think — we're talking millions of dollars — these sort of very creative transactions, because they're novel and because you're often importing very novel concepts into them and coming up with novel solutions, can actually be quite a time-consuming basis for additional legal work," he says. 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