Real estate groups prove their worth in the turnover stakes

Real estate is more than holding its own against corporate and finance rivals. By Joanne O’Connor

The results speak for themselves. Research for this year’s The Lawyer UK 100 Annual Report confirms once and for all that, far from being the poor cousins to their corporate and finance brethren, the UK’s real estate practices are an essential – and highly profitable – element in any successful full-service firm. In the profitability stakes, real estate practices are benchmarking themselves against corporate, and in many cases outperforming it.

The growing complexity of even the smallest real estate transactions has ensured that firms are advising on structures many didn’t think possible just five years ago. Tax structures such as Jersey Property Unit Trusts and the importance of real estate funds have demanded that real estate groups draw on the expertise of their partners in corporate, tax and finance. Poor returns in the equities market have also seen investors with cash to spend circling real estate in search of a safer product, while at the same time regeneration is booming.

It is therefore no coincidence that firms for which real estate comprises a large proportion of turnover also posted some of the strongest performances in the UK 100. The mid-market elite – Addleshaw Goddard, Berwin Leighton Paisner (BLP) and SJ Berwin – all have significant real estate practices, contributing 25.4, 35 and 23 per cent to total turnover respectively. The mid-market UK firms also speculate that, in its move towards complex global real estate transactions, the magic circle might be taking its eye off the domestic real estate market, creating opportunities for savvy mid-market players. However, Clifford Chance head of real estate Cliff McAuley insists it remains focused on lower-margin real estate work, such as portfolio management, for key clients.

The big news in the mid-market was the defection of Clifford Chance’s charismatic real estate rainmaker Robert MacGregor to BLP. Clifford Chance’s loss was BLP’s gain as, just months after joining the firm, MacGregor had already secured two key instructions from trophy client Canary Wharf.

BLP’s real estate group had one of the strongest years of any in the table, posting a 17 per cent rise in turnover to £42.3m and, MacGregor aside, recruiting four lateral partners into the group.

SJ Berwin’s real estate group also posted a strong year, with profitability outstripping that of the firm’s core corporate practice. Real estate turned over £25m last year, representing a 9.6 per cent increase on 2003-04, with group head Bryan Pickup budgeting for a similar increase this year.

Two mammoth deals powered SJ Berwin’s real estate practice last year: its work for Brixton on the acquisition of Industrious Holdings and its advice to Nick Leslau’s Prestbury on the Travelodge sale-and-leaseback. In recent years, the real estate group has sought to diversify its client base. While British Land remains its most significant client by revenues, its contribution to turnover has fallen relative to other major clients such as Brixton, AXA and Matrix. Last year saw the firm acquire real estate capability on the continent for the first time with the hire of a Paris partner, and Pickup has plans to acquire capability in Germany to capitalise on inward investment into the struggling German market.

While Addleshaw Goddard’s real estate practice failed to outperform the projects and finance groups, it still managed a respectable 13 per cent turnover increase on 2003-04. London real estate posted the strongest performance, registering a rise in turnover of 19 per cent. The firm also promoted two partners to its real estate group.

Real estate head Michael Reevey attributes the results to the success of Addleshaws’ strategy of leveraging off its Leeds and Manchester offices to conduct high-end real estate work at a competitive price.

Last year’s biggest biller by revenue was Travelodge, which the firm advised on its sale-and-leaseback. Standard Life, Threadneedle, Anglo Irish, Scottish Widows, Highbridge, J Sainsbury and Admiral Taverns are among the other big billers.

Eversheds continued to make ground on Clifford Chance, posting a 4 per cent turnover rise on the previous year. Key instructions included advising the London Development Agency on the planning and procurement for the Olympic City at Stratford. Eversheds has sought to expand its capability in real estate investment funds, culminating in its lucrative appointment to Legal & General’s law firm panel. Head of property Cornelius Medvei says Eversheds is on track to achieve its ambition, unveiled in 2001, to double in size by the end of 2006.

Whether Wragge & Co has achieved its stated aim of being the top real estate practice in the UK is debatable. However, the group is celebrating after reporting a 9.3 per cent increase in real estate revenue. Real estate operating profit is understood to have risen by more than 20 per cent. Real estate head Adrian Bland attributes the results to the group’s high leverage ratio (nearly five lawyers to every partner), targeting the right quality of business and better financial management.

Herbert Smith posted a respectable 4 per cent rise in real estate turnover, from £26.7m in 2003-04 to £27.8m last year. It retains its position among the most profitable UK real estate practices, with revenue per partner (RPP) topping £1.6m annually.

Allen & Overy (A&O), which last year failed to make it into the top 20, romped into seventh place, with real estate turnover exceeding £36.5m.

The RPP figures may, however, be deceptive. Firms such as A&O, Ashurst, DLA Piper Rudnick Gray Cary and Freshfields Bruckhaus Deringer and have large European practices, with many real estate deals being accounted for in the corporate departments, detracting from otherwise strong RPP results.

Even among the firms that posted drops in turnover, real estate outperformed many other practices. Clifford Chance posted a dip in real estate turnover of 2.9 per cent. McAuley attributed this to the closure of the firm’s Berlin office in November, the offloading of the San Francisco practice and the loss of key partners in London.

However, despite the dip, profit per equity partner increased 19 per cent and the firm managed to haul its RPP up by 13 per cent from just over £1m in 2003-04 to £1.5m last year.

At Lovells, which last week confirmed a 3 per cent turnover drop, real estate celebrated a respectable year, with turnover increasing marginally. The firm has developed a fine reputation in outsourcing deals, last year advising Aviva on the Norwich Union property outsourcing. It also acted on one of the most complex deals of the year, the Slough Estates property swap.

The results should lay to rest the notion of real estate as a marginal practice area. If real estate partners are swaggering more than usual this year, you’ll know why.

Real estate performance 2004-05

Firm Real estate turnover (£m) % of total Real estate partners Revenue per real estate partner (£K)
Clifford Chance 68 7.4 46 1,478
Eversheds 66.6 22 67 994
DLA Piper 52.7 16.3 61 864
Linklaters 48.3 6 38 1,271
Berwin Leighton Paisner 42.3 35 40 1,058
Freshfields 39 5 32 1,218
Lovells 36.6 10 40 915
Allen & Overy 36.5 5.5 25 1,460
Addleshaw Goddard 35.5 25.4 38 934
Nabarro Nathanson 32.7 33.4 28 1,167
Herbert Smith 27.8 10.5 17 1,635
Wragge & Co 25.8 29.1 27 955
SJ Berwin 25 23 22 1,136
CMS Cameron McKenna 24.3 14.9 17 1,429
Denton Wilde Sapte 23.4 15 18 1,300
Hammonds 23.1 17 25 924
Pinsent Masons 22.6 15 32 706
Ashurst 24 12 16 1,500
Lawrence Graham 20.9 35 32 655
Macfarlanes 18.5 25 13 1,423
Cobbetts 18 36 39 462
Shoosmiths 17.9 29.4 26 688
  Source: The Lawyer