Real estate lawyers eye CIS as Middle East reaches saturation
24 March 2008
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So the Middle East is hot. Big news. If another firm cottons on to the fact then Ashurst client Serco had better get the Dubai metro up and running quick sharp or there will be nose-to-tail traffic all the way to Muscat.
The stalemate on UK investment together with the Gulf's function as a hub for capital to and from Asia means that law firms will continue to target the region for new opportunities. But the fact that its legal markets are reaching a certain level of saturation necessitates a Plan B.
This year's Mipim offered a geographical alternative - the CIS. From the cocktail parties on the opening night to the billboards announcing the investment opportunities in the competing Russian regions and the displays filling the Palais des Festivals, the Eurasian countries were demonstrating they were there in full force.
Considerable natural resources, a rise in foreign direct investment and the leverage afforded major corporations through their proximity to their respective political elites, have fast created a super-rich class that is driving the development of major projects. The scale of these projects was available to see at Mipim - from premium property developments to gambling and leisure projects in the thousands of hectares.
For law firms, getting a foot in the door in Almaty, Kiev or Moscow is not so difficult, but making a viable long-term investment in a real estate team is a bit less certain. It is a major challenge to find qualified, bilingual lawyers who fit in with an international firm's culture, says Ksenia Kazakova, a Russian associate in the Moscow office of Dewey & LeBoeuf.
"Russian lawyers don't want to do real estate," she adds. "They're much more interested in banking, finance and capital markets." Kazakova also comments on the quantity but lack of quality of some unnamed rivals. As a result international real estate teams that want to establish a presence in the CIS face a tough choice: either to parachute in lawyers from the UK and the US, which is not always received positively in the local market, or to build up their practices slowly but be unable to take on the sheer volume of work at stake. The other problem is political risk. Although this is inevitably priced into returns, lack of transparency leads to an unpredictable business environment. Maybe alternative markets do need to be sought.
Lovells - no stranger to Russian real estate deals after advising an Otkritie- Deutsche Bank joint venture on a $900m (£449.19m) transaction in the country - was approached at Mipim by firms in Hungary and Romania about capitalising on its 'Mexican Wave' model. If the firm decided to pursue these contacts, Lovells could also pick up work in the emerging markets of Hungary and Romania, where it does not have a presence. Eastern Europe may offer an alternative to the CIS in terms of higher investment returns than the UK, with a better rule of law than the CIS.
On the other hand there are firms that are looking to mature markets as sources of inward investment to the UK. Germany is a much talked-about example. One partner reported German open-ended funds as saying "things must be quiet in London", due to the traffic of firms passing through his door.
Berwin Leighton Paisner is targeting US firms that have little presence in the UK as part of a "client-driven strategy", according to managing partner Neville Eisenberg, while Freshfields Bruckhaus Deringer is going to Canada and the US to look at working with property funds and investment companies with which the firm's corporate department already has a relationship - entities that might be looking to target the UK once the market bottoms out.
But the big question is when that will happen. Mipim was flush with discussion on the point and there was little consensus reached. Is it just around the corner or several months off? As one lawyer says: "If I knew that, I probably wouldn't be a lawyer."