Yorkshire: Hot property
15 October 2007
My other half is a surveyor, and a Yorkshire one at that. To say that he is somewhat direct and to the point is to put it mildly. Having worked with many real estate lawyers, he will often tell me that our job is easy. "After all," he says, "your contracts just say 'The buyer will buy and the seller will sell'. How hard can it be to get that right?"
The answer to that, more often than not these days, is "very". The Yorkshire real estate market has seen a significant growth of deals in the past five years and become so corporatised that almost all deals are now scrutinised to find ways of enhancing value way beyond the remit of traditional property lawyers.
The reason why is straightforward, even if the deal structures are not. The region's property market has become more competitive than ever and more investors are turning to indirect property investment vehicles, which means that across the region, and particularly in Leeds, real estate clients of all sizes and in all markets have needs that are proving far more challenging than simple conveyancing.
This poses interesting challenges for the Yorkshire legal market. Traditional real estate deals were often done by traditional real estate lawyers, calling on the odd piece of tax or corporate advice when necessary, and the midand top-tier firms in the region certainly proved adept at this kind of work. With the changes in the market, however, real estate teams cannot now serve clients' needs unless they include corporate, tax, finance and regulatory lawyers, all of whom need an understanding of the real estate industry as well as their own specialism.
Clients now expect real estate teams to be able to help them with every aspect of a deal and to be far more inventive and creative than they have ever been before. The degree of expertise that was once only relevant for the most sophisticated clients or the largest deals has become an essential component of many mainstream transactions of even moderate value.
For example, joint ventures have been a feature of the real estate scene for many years, but now, however, the tax issues surrounding them and the number of options for sharing ownership of, or participating in, a property deal have multiplied steadily over the years. Even a 'simple' joint venture can throw up opportunities to make savings for clients that lawyers need to be aware of. Because so many deals now involve tax, finance, corporate and regulatory colleagues on an ever more-frequent basis, real estate lawyers are now seen by clients as part of their core team, who understand the real estate industry and operate accordingly.
Bridgewater Place provides a key illustration. The latest high-rise addition to the Leeds skyline is a very visible instance of prime Leeds property that in the past would have been bought, funded, developed, let and sold in a relatively straightforward manner. The real estate aspects of the deal did not, ultimately, affect viability. Instead, at every stage, the viability was underpinned and secured by a variety of structures.
The developer Bridgewater Place Limited is a joint-venture company owned by Landmark Development Projects and St James Securities, formed at the time the site was acquired from HBOS. The joint-venture structure facilitated the sharing of risk and created a combined covenant strength and expertise, which was more attractive to the seller. The completed development was forward funded and acquired by a limited partnership that, due to its tax transparency, was able to offer individual investors better net returns.
In addition, the residential element was sold to another joint-venture company. The potential impact on each other of the structure of the underlying corporate entities and the practical real estate, tax, funding and construction issues had to be predicted and dealt with at every turn. In many ways, although by no means straightforward, the pure real estate aspects were simply a given, but the various individual aspects of the overall deal stood or fell depending on how they were structured. This particular deal demonstrates clearly how, increasingly, the intrinsic value of a property or participation in real estate opportunities can be enhanced by the structures applied to them.
Overall, a clear indicator of the acceptance in the region of this recent breed of real estate deal is the fact that these inventive property-holding structures are now being considered by the public sector, particularly in the context of urban regeneration. Public and private sector participants are taking advantage of a variety of techniques to underpin viability, allow public-sector participation in profit, share control without sharing risk, and achieve many other objectives.
We are becoming involved with this work, acting for either public or private sector clients, with increasing regularity. Obviously, the regulatory issues affecting public sector participants are fundamental and often structures that work well with private sector participants require significant reconsideration.
So, these are interesting times for both the Yorkshire real estate market and its legal counterpart. Deals are ever-changing and more inventive solutions are required by clients to maximise their returns on not just the headline-grabbing developments, but the smaller, seemingly more straightforward projects.
Leeds practices have certainly met the challenge head-on and are ensuring that this work stays in the region rather than being shipped to London. Clients who would traditionally have had a medium-sized Yorkshire firm to do the straightforward jobs and a London one to do the higher-end, more corporatised jobs no longer feel the need to do so. They should find everything they need within the region.
Paula Dillon is a partner at Addleshaw Goddard