Can it really be true? After years of neglect, can the big City firms really be starting to take property seriously again?
A statement based on a false premise – that the big firms did not care about property – is a dangerous thing, but some of them have given that impression. The rot began in the last recession, when a lot of developers went to the wall and forward funding ground to a halt.
Many City firms tried to de-emphasise their property practices in favour of banking and corporate, desperate to make themselves appear more “City” – a merger-driven impulse in many cases. Fuel was thrown on the fire by the medium-sized firms which were more dependent on property (the words “corporate support” becoming a vicious slur), ably abetted by a few grumbling banking and corporate partners in the top firms. Property was not having a good time.
But a few months ago, things started to change. First, Allen & Overy‘s property department, long-derided as being just a corporate support practice, appointed Adam Cleal as its head. Cleal unveiled a strategy to increase the proportion of “pure” property work the firm did.
Freshfields’ appointment of Chris Morris as head of property seemed to signal a shift in the market’s perception of the practice, whereas the long-suffering Geoff Le Pard had been banging away at the corporate support tag.
Then Clifford Chance hired three property partners – Robert Porter and Arthur Dyson from CMS Cameron McKenna and Jonathan Solomon from Norton Rose. This followed on the heels of the firm taking on three fee-earners to do property management work, a move somewhat missed by the market.
The beleaguered property practice at Herbert Smith, under close scrutiny from the market after stories of it downgrading property, pulled off the most audacious property lateral hire in memory, persuading David Taylor, head of property at Berwin Leighton, to join. Property was firmly back on the City’s agenda.
However, some firms had never taken their eyes off the ball. Lovells had previously addressed its underpartnering problem with the hires of Nicholas Cheffings and Dion Panambalana from Nabarro Nathanson a year before, and had begun to experiment with ways of getting lower value work done more efficiently, including outsourcing to smaller firms and ex-City lawyers who were now working part-time.
The City had begun to realise that to be credible on the corporate stage, not to mention on crucial project work increasingly highlighted with the public private partnership (PPP), firms needed to have credible property practices.
The polarisation which happened in corporate and banking a number of years ago came into sharp focus in property. Just 10 years ago, it was possible to compare Linklaters & Alliance’s practice with that of Berwin Leighton or Lawrence Graham. Nowadays, the comparison is looking increasingly difficult.
That is not to say that the firms do not compete. They do, particularly on disposals and acquisitions work and much of the project work. However, on global reach and on the more complex finance-related work, a small number of firms are pulling away from the rest of UK property.
In fact, the market for property legal services can be broken down into a number of key supplier groups, based on what clients actually want. For example, there are a lot of firms capable of transacting a £5m portfolio sale. Go to some of the smaller regional practices and you will get a partner-led service at a fraction of the cost of the City, and you might make deal of the year for the firm. Go further up the food chain and your transaction becomes bread-and-butter work. At the larger firms, unless that £5m portfolio sale is part of a slew of work, you’ll be paying over the odds for a more junior lawyer. At the very top of the tree, firms would not even get out of bed.
At the top table of UK property legal services sits the International Superleague. This select handful of firms – Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters, and Lovells – have international presences. All of them have transacted major European mergers since last year, giving them large domestic property practices in parts of Europe. All have varying skill bases, client bases and major finance capabilities. But there are differences. For instance, Freshfields does not have the property practice of Linklaters or Clifford Chance, and Lovells does not have the power globally of any of the three. Within this group, Clifford Chance has made the most impressive moves forward, reinventing itself in a few short years.
Below them, the UK Superkings inhabit a further tier of property. These are the major commercial conveyancing practices, often possessing some of the qualities of the Superleague, all capable of the major UK PPP work, but lacking something their larger brethren share, usually a global practice. The two battling it out for top spot here are Nabarro Nathanson and Berwin Leighton, both perceived as property specialists in a way that even some of the Superleague may envy. But short of international merger, neither can move up to the next level.
In this group are a number of international firms: Ashurst Morris Crisp, Herbert Smith and Simmons & Simmons. All have large property practices, with international networks varying in depth and quality. They are all attractive international merger candidates and could, at some point, become the powerful UK outposts of US or global firms, propelling them onto another level.
CMS Cameron McKenna is impressive and a good example of where two plus two can equal five in property. The firm’s development in Eastern Europe has edged it close to an international property practice. Lawrence Graham and DJ Freeman have also developed well of late, sorting out some structural issues and bringing in and settling new resources – property finance for DJ Freeman and development work for Lawrence Graham. Denton Wilde Sapte remains a bit of a mystery, it is also the result of a merger but this seems to have had no major effect on property.
National firms are not among the Superkings, although they may feel they have a right to be. They can offer the UK national client an interesting proposition – a national service, managed locally, although this is done to varying effect. Both Eversheds and DLA have some international presence, which suggests interesting things. The merger between Hammond Suddards and Edge Ellison, to create Hammond Suddards Edge, brought Hammonds to Birmingham and boosts the firm’s small-but-perfectly-formed London practice.
All the firms, save perhaps Pinsent Curtis, would argue that they compete head-to-head with the City, and indeed their property practices in London are somewhat comparable both with the Superkings and those in yet another bracket, the City firms.
This group sits below both the Superleague and the Superkings and includes firms with an international presence, often with a finance capability and undertaking some project work, but essentially solid backups to corporate practices, plus some stand-alone work – with some more stand-alone than others. Allen & Overy heads the pack here, and the firm’s renewed focus on property should take it places in time.
Further down come the smaller London practices and the regionals. Those clients wishing to buy basic disposals, acquisitions and property management work at lower cost will find a number of decent firms in each region.
One thing is sure. The past few years have wrought a sea-change in UK property legal services, and there is no going back. For now, practices are mostly making hay while the sun shines, but who knows what the next downturn will hold. For some, it may spell the end of the gravy train.