UK real estate practices left in a real state by US rivals
The UK’s top 10 firms appear to be on the back foot as their US rivals reveal that their sights are well and truly settled on the local real estate market – and that they plan to target UK expertise to achieve success.
Ian Nisse’s departure from Ashurst later this week (his last day in the office is 8 October ) to launch New York’s Shearman & Sterling’s UK real estate practice is a perfect example.
Although most players in the real estate market were well aware that Shearman had been actively hunting for a figurehead to establish a property group for almost a year, few had predicted that a heavyweight like Nisse would join the firm.
Casting aside the usual arguments that this is just further proof of the sizeable remuneration packages that US firms are able to offer (Nisse is being paid as much as £1m a year), the appointment should serve as a wake-up call. After all, it is a big statement of intent from Shearman and will probably prove to be the first of many from US firms.
It is the top 10 UK firms that should be most rattled, because it is both their work and their partners being chased by the US practices.
A quick scout around the US firms’ real estate practices highlights the fact that the majority want real estate practices as a link to corporate or finance rather than to target standalone work.
For example, Shearman plans to focus on “structured finance to support its existing corporate finance skills”, according to London managing partner Kenneth MacRitchie.
In fact, Shearman has stated that when it comes to traditional real estate development, it will consider only top-end developments of the calibre of Canary Wharf. Nisse’s two main clients, Chelsfield and Stanhope, will certainly be targets, although sources say that he will have difficulty in persuading Chelsfield at least to follow him to Shearman.
The only other development work Shearman plans to do out of London will be to service its existing clients. But this can be pretty lucrative, as Latham & Watkins can testify. Latham’s real estate team helped to consolidate the firm’s developing European relationship with Soros Private Equity Partners by advising on its bid to purchase Queens Moat Houses’ German operations.
The few exceptions to the typical US firm strategy are firms which have full-service, traditional real estate practices thanks to mergers with or acquisitions of UK firms – although Dechert is a perfect example that the retention of a full-service real estate practice may not always be the aim.
Historically one of the UK’s retail real estate darlings, Dechert’s practice has gone through a rather drastic shake-up; this year alone high-profile departees have included real estate partner Michael Hallowell, construction head Charles Brown and property finance partner Mark Packer. Real estate head Ciaran Carvalho, though, disputes claims that the firm is following the typical US strategy of offering finance and corporate support, vehemently stating that it remains dedicated to full-service real estate.
Jones Day also appears to be struggling under its ambitions to provide full-service real estate expertise. For example, Jones Day lost legacy Gouldens real estate and structured finance partner Christopher Berry in March, threatening the firm’s relationship with Royal Bank of Scotland. The firm, though, has managed to retain a considerable amount of mid to lower-level real estate work, an example being head of the London real estate team David Roberts’ representation of Pillar Property on its £31m acquisition of Crown Point North Retail Park in Denton from Reeb Estates.
This hankering for a full-service real estate capability seems to be the key reason for Piper Rudnick’s desire to tie up with DLA. But is it really worth the Americans’ time trying to compete in a full-service real estate market anyway?
Head of real estate for DLA David Taylor is adamant that a link-up
with Piper Rudnick would bolster the two firms’ real estate practices (a ballot on the formation of DLA Piper Rudnick is scheduled for 23 October). Unlike Philadelphia-based Dechert Price & Rhodes, he claims that as a leading US real estate practice, Piper Rudnick offers as equal a focus on real estate as DLA, potentially leading to a high number of cross-referrals between the two teams.
“We’re not going to be the UK office of Piper, but instead will be able to leverage off their tremendous power base in the US,” Taylor says. “It’s not the same as looking at the boutique London offices of US firms, because although they’re substantial, they’re not nearly the same size, and the investment in full-service real estate doesn’t make sense for them.”
However, not everyone is convinced, with at least one industry pundit questioning whether the investment in a full-service real estate practice is worth the City firms’ while either.
“City firms cannot compete with the regional firms on price for lower-level property development work, so why do it? It’s far more lucrative to focus on servicing your existing clients as they increasingly look to Europe for investments and also challenge the magic circle on top M&A matters,” says the pundit.
One thing is for sure: you can be certain that Nisse will not be the last real estate lateral hire from a UK to a US firm. Shearman has declared plans to find a right hand man for Nisse, take on 10 associates and make at least one other partner lateral. And there are plenty of other US firms out there looking. The question is: who will take up the offers?
