The massive Hercules Unit Trust transaction this week epitomises the significant long-term shift in real estate lawyering that has defined the past year for lawyers in this sector.
The deal saw Pillar Property and Schroders create a £1.5bn property unit trust and take a giant step in the industry’s quest for a tax-efficient alternative to direct property investment.
Whether in the City, the West End or the regions, real estate lawyers are working hand-in-glove with their corporate and finance colleagues like never before, and are already well on the way to becoming one and the same thing.
As The Lawyer’s “London’s Turning” feature illustrated (21 May), the development schemes that are changing the capital’s skyline have led the way in this transformation. The plain vanilla route of ‘build it, finance it, sell it’ of 15 years ago is no more. The Lawyer said: “Of course, it was never easy, but the business has changed dramatically since then, not least down to the innovations of such seminal 1980s projects as Canary Wharf and Broadgate. They have helped change the whole market, breaking new ground in terms of sheer scale, quality of design, speed of construction and the complexity of different types of finance and sale and letting techniques, much of which was imported from the US. The impact on the legal profession has been profound, helping to transform the role of property lawyers within the professional team and making the work more profitable than ever before.”
Linklaters is one firm that has taken hold of the shift with both hands, and as a result scooped The Lawyer’s Real Estate Team of the Year Award back in July.
The shift also goes a long way towards explaining a flurry of niche West End property practices opting to be swallowed up by much larger firms. When Nathan Silman, McGuinness Finch and Higby Hargreaves all took this route during 2001, The Lawyer wrote: “Property lawyers now operate in quite a different climate to the heydays of the 1980s, when stamp duty had yet to shoot up to today’s 4 per cent. Property ownership and investment is now far more sophisticated. Securitisation, limited liability partnerships and so on have emerged from corporate and tax lawyers. For former Nathan Silman partner Nicola Kravitz, the need to gain in-house tax expertise was a critical driver for seeing Nathan Silman merge. Accountants may be one answer, but knowing you are fielding as good a tax lawyer as the other side is a nice feeling. McGuinness Finch also felt the need to develop its corporate capability and set out to find a team – unsuccessfully. And corporate structuring was something Higby Hargreaves simply did not offer.” (18 June.)
As ever, the flip side of the coin for clients demanding such sophisticated expertise has been cost. Clients are shrewder than ever about how they divide up their work. Against this backdrop, national and regional firms have been proving their worth. Eversheds, for example, won a prestigious new appointment to replace Linklaters as adviser to Lend Lease Corporation on its flagship Bluewater Shopping and Leisure Centre. In-house solicitor Jackie Jordan told The Lawyer: “We’ve certainly not severed our ties with Linklaters. Both they and we felt that perhaps they were a bit too big for the day-to day-work.” (17 September.)
Prudential is another mega client rethinking how it uses lawyers. When The Lawyer broke the story that the Pru was to review its legal outsourcing for UK property investment for the first time in 10 years, prop erty secretariat director Bob Allen said: “We’ve seen that accomodation costs and salary costs are on the up for City firms,” adding that he would not rule out the addition of a regional firm to the panel in order to curb costs.
As the pressure to cut back on legal costs is certain to keep mounting in the New Year, national and regional firms will be snapping at the heels of City advisers in 2002 like never before.