Real estate restructuring work, a bandwagon that many firms jumped on in the past year, shows no signs of slowing. More than $1.4 trillion in commercial loans are coming to term in the next four years, according to the Congressional Oversight Panel studying financial reform, and will likely keep the distressed-property business booming.
That trend is paying off for many firms and their workout practice groups. Katharine Bachman, vice-chair of the real estate practice group at Wilmer Cutler Pickering Hale and Dorr, says her group has seen a real spike in restructuring work. When the firm first organized its Distressed Real Estate Solutions Group at the end of 2008, only a small percentage of the real estate practice concentrated on loan collections and distressed asset investments.
"Today, approximately 30 percent of our real estate work is in the distressed arena. We project that this percentage will increase as investment markets loosen ... particularly given the fact that so much commercial real estate debt -- financed at higher valuations than the current market -- is coming due over the next few years," she says.
Last week Jenner & Block announced the formation of their Real Estate Finance Litigation and Workout Task Force, bringing together attorneys from the real estate, complex commercial litigation, bankruptcy, corporate and environmental practices. Don Resnick, chairman of the firm's real estate practice, says creating a cross-functional team made sense.
"We just kept running into each other working these cases. We realized that [various practice areas] needed our help, and we needed theirs, to tackle this feeding frenzy of work," Resnick says. "With this team we're also able to use our expertise from 1990 to train the younger attorneys, many of whom had no idea a property deal could go bad." Resnick is one of many leaders of real estate divisions who worked on distressed deals in the 1990-91 recession.
Many real estate attorneys say they saw the writing on the wall in 2008 as securitization and splitting up debt became popular in the past decade, and the risk implications of trying to deal with unraveling each piece was ignored. Rick Jones, co-chair of Dechert's finance and real estate group, says he likes to call it the "Glass Race Car" theory.
"A glass race car, you would imagine, can be created with multiple chemicals and layers into all one piece with intricate details and structure. It's great, until it hits the wall. Then it shatters in a thousand sharp pieces," he says.
The restructuring business for Dechert has also grown significantly, he says, both in representing lenders and borrowers. "I would say the workout business throughout the legal community is up several hundred percent," Jones says. "I think we'll see the volume of troubled loan restructures increase another 100 percent between now and 2011. It won't be until 2013, at least, that we see a market start to be free of dealing with restructures."
However, Jones says though there's a great deal of restructuring nuances to wade through, the number of cases is still much, much lower than was expected. "We all saw this movie in 1990. We all went from originating loans to working them out for a number of years, and this was the paradigm that we thought would be followed. It just didn't happen," Jones says.
In hindsight, he says the bid-ask spread, the difference between the asking price of a property and what someone would be willing to pay, just got too wide too fast. "Banks have been enabled by regulators not to mark assets to real trading values and sell them, and we're still seeing a reluctance from holders to engage in wholesale sales. It's just causing a drag on the credit markets for all deals," Jones says. He adds, "things are starting to pick up. We're cranking up lateral hiring for the first time in three years."
Brett Miller, a partner with Morrison & Foerster, says his firm's Distressed Real Estate group was formed about 18 months ago; and similar to other firms with these teams, the core group is about 30 attorneys. His practice group, led by Chair Mark Edelstein, has been involved in the Chapter 11 filing of Stations Casinos (representing bidder Boyd Gaming Group), as well as representing the largest creditor group in the General Growth Properties bankruptcy case, and the largest creditor in the Extended Stay Hotels bankruptcy case.
"Workouts are just a tremendous growth area, and it's going to continue. You're going to see a lot of case law being developed from these issues, such as the decisions in the General Growth case that showed bankruptcy can be filed for the greater good," Miller says.
Richard Fries, a partner who leads the commercial real estate and distressed loan restructuring team at Bingham McCutchen, says that a specialized distressed property practice at many firms is here to stay, in contrast to the end of the last down cycle, when restructuring work seemed to fade away as bigger deals came in.
"The work in our distressed real estate group has increased significantly since its inception a year and a half ago," Fries says. "Our volume has probably increased close to 50 percent. We expect that, subject to changes in the marketplace, we shall be involved in distressed real estate workouts for the next two to three years at a level greater than today. It is hard to fix a percentage, but a steady increase each year is likely."
http://www.law.com/jsp/article.jsp?id=1202458980183&Real_Estate_Restructuring_Work_Proving_a_Boon_to_Firms
Ankit Rawal
FTC Postpones 'Red Flags' Identity Theft Rule by Jenna Greene
Under pressure from Congress, the Federal Trade Commission has agreed to postpone enforcement of its "Red Flags" rule that requires lawyers, doctors and other professionals to develop written identity theft prevention programs.
Both the American Bar Association and the American Medical Association have sued the agency, arguing that imposing the identity theft rule requirements on their members is arbitrary, capricious and has no legally supportable basis.
The rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the FTC and other agencies to develop regulations requiring "creditors" and "financial institutions" to address the risk of identity theft.
The FTC considers lawyers and other professionals to be creditors under the act, and required them to implement written identity theft prevention programs to detect the warning signs -- or "red flags" -- of identity theft in their day-to-day operations.
Last August, the ABA, represented pro bono by Proskauer Rose, filed suit in U.S. District Court for the District of Columbia challenging the rule's application to lawyers.
In October, Judge Reggie Walton backed the ABA, saying the FTC had overreached and that applying the rule to lawyers was unreasonable.
The FTC in February said it would appeal the decision.
Last month, the American Medical Association sued the FTC in U.S. District Court, arguing the rule should not apply to physicians either. Sidley Austin's Frank Volpe is representing the AMA.
On Friday the FTC announced that "as the request of several members of Congress," it would delay enforcement of the rule until the end of the year.
"Congress needs to fix the unintended consequences of the legislation establishing the Red Flags Rule -- and to fix this problem quickly. We appreciate the efforts of Congressmen Barney Frank and John Adler for getting a clarifying measure passed in the House, and hope action in the Senate will be swift," FTC Chairman Jon Leibowitz said in a statement. "As an agency we're charged with enforcing the law, and endless extensions delay enforcement."
http://www.law.com/jsp/article.jsp?id=1202458982652
Both the American Bar Association and the American Medical Association have sued the agency, arguing that imposing the identity theft rule requirements on their members is arbitrary, capricious and has no legally supportable basis.
The rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the FTC and other agencies to develop regulations requiring "creditors" and "financial institutions" to address the risk of identity theft.
The FTC considers lawyers and other professionals to be creditors under the act, and required them to implement written identity theft prevention programs to detect the warning signs -- or "red flags" -- of identity theft in their day-to-day operations.
Last August, the ABA, represented pro bono by Proskauer Rose, filed suit in U.S. District Court for the District of Columbia challenging the rule's application to lawyers.
In October, Judge Reggie Walton backed the ABA, saying the FTC had overreached and that applying the rule to lawyers was unreasonable.
The FTC in February said it would appeal the decision.
Last month, the American Medical Association sued the FTC in U.S. District Court, arguing the rule should not apply to physicians either. Sidley Austin's Frank Volpe is representing the AMA.
On Friday the FTC announced that "as the request of several members of Congress," it would delay enforcement of the rule until the end of the year.
"Congress needs to fix the unintended consequences of the legislation establishing the Red Flags Rule -- and to fix this problem quickly. We appreciate the efforts of Congressmen Barney Frank and John Adler for getting a clarifying measure passed in the House, and hope action in the Senate will be swift," FTC Chairman Jon Leibowitz said in a statement. "As an agency we're charged with enforcing the law, and endless extensions delay enforcement."
http://www.law.com/jsp/article.jsp?id=1202458982652
What is LPO? By Doug Peters
Legal Process Outsourcing or LPO as it is popularly known is a practice through which law firms seek legal assistance and services from another law firms from either within or outside their own country. The kind of services sought by the firms outsourcing are legal research, writing legal documents, review of documents, drafting of pleadings, contracts management, litigation support, document discovery, Intellectual Property focussed services and patents services (patent prior art search, patent portfolio management, patent optimisation and patent/trademark filing processes).
LPO has become a compelling option for most companies in the west. Law firms in the US and the UK have seen the worst economic fallout in the past few years. As a result they have started looking for options to reduce their costs. Legal services are very expensive in the US and the UK with hourly rates for lawyers and consultants touching the roof. This has helped countries like India and Philippines in getting a lot of legal work from abroad. The LPO market was valued at $320 million in the year 2008 by Value Notes research and is likely to touch $640 million by the end of 2010. Pricing has been the key driver for legal firms wanting to outsource.
Though legal work in India and other major outsourcing hubs has grown in the past couple of years, there have been a few challenges as well. Some lawyers in the US and the UK have started compromising on their fees due to the economic meltdown. Some fledgling companies doing legal work in countries like India have not been able to deliver as promised. This has resulted in many companies in the US looking for legal firms within their country to ensure all processes involved are ethically followed. Besides, there are concerns looming large over the confidentiality of clients and the ethical composition of the outsourcing firms.
India has become one of the most popular destinations for companies wanting to outsource legal work. This is so because there are certain very obvious advantages like availability of English speaking, US and UK graduated, qualified attorneys working at less expensive rates. Besides the Indian legal system is much like its counterparts in the west.
Legal process outsourcing is a major chunk of the outsourcing pie. Though there are limitations and challenges surrounding this, we can expect only growth in this sector. If large and experienced BPO companies manage to work on the ethical and quality aspects of this vertical, we can expect unprecedented growth in the coming years.
http://www.ideamarketers.com/?articleid=1119730&CFID=35732806&CFTOKEN=61680156
LPO has become a compelling option for most companies in the west. Law firms in the US and the UK have seen the worst economic fallout in the past few years. As a result they have started looking for options to reduce their costs. Legal services are very expensive in the US and the UK with hourly rates for lawyers and consultants touching the roof. This has helped countries like India and Philippines in getting a lot of legal work from abroad. The LPO market was valued at $320 million in the year 2008 by Value Notes research and is likely to touch $640 million by the end of 2010. Pricing has been the key driver for legal firms wanting to outsource.
Though legal work in India and other major outsourcing hubs has grown in the past couple of years, there have been a few challenges as well. Some lawyers in the US and the UK have started compromising on their fees due to the economic meltdown. Some fledgling companies doing legal work in countries like India have not been able to deliver as promised. This has resulted in many companies in the US looking for legal firms within their country to ensure all processes involved are ethically followed. Besides, there are concerns looming large over the confidentiality of clients and the ethical composition of the outsourcing firms.
India has become one of the most popular destinations for companies wanting to outsource legal work. This is so because there are certain very obvious advantages like availability of English speaking, US and UK graduated, qualified attorneys working at less expensive rates. Besides the Indian legal system is much like its counterparts in the west.
Legal process outsourcing is a major chunk of the outsourcing pie. Though there are limitations and challenges surrounding this, we can expect only growth in this sector. If large and experienced BPO companies manage to work on the ethical and quality aspects of this vertical, we can expect unprecedented growth in the coming years.
http://www.ideamarketers.com/?articleid=1119730&CFID=35732806&CFTOKEN=61680156
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