A Verdict on the Recovery

From someone who would know—one of Big Real Estate’s top lawyers on where the work is coming from now

robertivanhoe 1 A Verdict on the Recovery As chair of law firm Greenberg Traurig’s Global Real Estate Practice and its New York office—not to mention co-chair of its national Real Estate Investment Trust group—veteran attorney Robert Ivanhoe has, for more than 30 years, represented most of the city’s heaviest real estate hitters. Mr. Ivanhoe, 58, talked about the still-changing face of commercial real estate in the aftermath of the economic collapse, the re-emergence of C.M.B.S., and his relationship with Jonathan Mechanic.

The Commercial Observer: Summarize the type of real estate assignments Greenberg Traurig has been tasked with in New York City over the past six months to a year.

Mr. Ivanhoe: It’s been sort of interesting because, obviously, we went through a very significant downturn in the real estate market associated with the financial crises in 2008; and into the second half of 2008 and 2009 and most of 2010, our activity was way down.

What’s interesting to me, from my perspective, is I see that the market is recovering very differently in different parts of the country, and I see all that very specifically in our real estate practice. So, for example, here in New York we’re very busy—we’re working at close to capacity for probably the first time since 2007. But that’s very good, but unusual.

But that’s not true throughout all of our other offices, so there’s really a significant bifurcation of how the market is recovering; and it’s very much reflected in our workflow throughout our firm. And places like New York, Washington and some of the California offices, and maybe Chicago, are recovering much better than some of the other offices, and that’s reflective of the markets.

 

It’s surprising to hear you say that during the downturn, activity at Greenberg Traurig slowed. I would imagine that even during a downturn—and, perhaps, especially during a downturn—real estate developers and building owners need legal assistance.

It’s interesting, everyone thinks that. There’s some truth to it—I mean, we didn’t slow down as much as some of our clients did in many instances.

But here’s what happens: I’ve been around through several of these down cycles—I guess this is the third one I’ve been through—and what typically happens is from the time when the problem starts it probably takes at least a year for significant movement in even getting into restructurings and workouts and things of that nature. Usually, you’re just in total gridlock for a year on 95 percent of what’s going on; and that was very true this time.

The downturn started, in the capital markets, in June of 2008, and everybody thought, ‘Oh, well, wait until Labor Day. Things will get better.’ And, of course, they got much worse. Lehman blew up, and then people said, ‘Well, wait ’til the beginning of the year.’ And while that was happening—even though people were getting more and more fearful, and the car was getting close to going off the cliff—there was very little going on from a legal perspective. There were some exceptions to that, but, by and large, lenders weren’t taking action even where loans were going into default. Borrowers were just sitting there and kind of hoping and waiting to see what happened.

So there was really very little going on—probably until, at least, the beginning of 2010, on any kind of serious restructurings.

 

Even if it was only a drip, what kind of work were you taking on in early 2010?

Back then, at the beginning of 2010, we spent a lot of time and devoted a lot of manpower to the representation of one of the two bidders in an extended-stay hotel bankruptcy.

And probably for the last part of 2009 and much of 2010, a lot of what we were doing was in the restructurings, whether it was inside or outside of bankruptcy, of real estate assets and overleveraged real estate transactions. And that work picked up as time went on.

We also were very involved in representing Barclays Bank in their takeover of the Crescent portfolio from Morgan Stanley, the former Crescent REIT, which Morgan Stanley did a private transaction for, and then defaulted. They couldn’t pay off the Barclays loan that allowed them to buy it.

 

From a legal standpoint, what kind of real estate trends have you seen since 2010?

One trend that’s really very obvious is that, when work started to pick up last year, it was mostly the kind of work I’m describing. I’ll broadly describe it as distressed or restructuring work. We represented many buyers of F.D.I.C. portfolios of loan pools from failed financial institutions.

But the nature of the work has not only increased, it’s changed from that kind of work that’s purely distressed to more traditional transactions—buying, selling, financing and a more positive kind of restructuring, where the borrower and the lender kind of finally agree on valuation, and there’s a capital shortage, and there’s a new capital provider that steps into the breach and helps recapitalize an otherwise underwater transaction. We’ve been doing those.

 

With that said, have mezzanine and commercial mortgage-backed securities options made returns as useful financing tools in Greenberg Traurig’s tool chest?

Yes—well, much more C.M.B.S. than mezzanine; mezzanine is just starting. You know, it’s interesting. In 2007, C.M.B.S. had its all-time high of over $230 billion of issuance, and then it went down to virtually zero for a couple of years. This year, they’re predicting $50 billion. Whether it will hit that or not we’ll see, but it seems to be more or less on track for that.

There are a lot of new originators that have entered the arena, and some of the old ones who pretty much terminated the business are gearing up again, so it’s very interesting. We’re getting a lot more active in that area. We’re representing a few lenders who are originators in their conduits again, which is the kind of work we hadn’t done in years.

And, obviously, on the borrower side there’s a lot more financing. But the nature of that is, so far, quite different.

 

How has the nature of that work changed since the downturn?

The sizes of those loans, if they’re actually going to be securitized, are much smaller than they were back in the day, after the 2007 period.

 

Among real estate observers and people in the know, your name is regularly spoken in the same sentence as another real estate attorney, Jonathan Mechanic. From what I understand, the two of you have a friendly relationship. Are you also competitors?

He’s much more photogenic than I am. But, yeah, what you said pretty much sums it all up. I would say that we’re friends, and we also definitely respect each other very much—but there’s certainly a competitive aspect of it as well. How couldn’t there be?

jsederstrom@observer.com