Real estate and property lawyers have been busy thanks to some unexpected consequences from the global financial crisis, writes Michael Pollak.
Lawyers involved in real estate practice are having an exceptionally busy time of it, thanks to unexpected consequences from the global financial crisis which has placed renewed emphasis on property deals worth between $70 million and $80 million.
Because banks are reluctant to commit to overly ambitious projects, any grandiose scheme worth more than $100 million now requires deft financial and legal skills.
Lawyers are increasingly required to make instant strategic decisions and formulate long-term plans.
Targeting the right projects and seeing them through to fruition is an ongoing task according to DLA Phillips Fox Melbourne partner Tom Cantwell, whose 20 years' experience has covered structuring and strategic advice, developments and joint ventures, as well as legal due diligence, risk assessment and contractual issues.
"We're not seeing $100 million-plus deals right now, and many of the biggest projects are stalled for lack of finance, but elsewhere there's been a good scale of transactions," Cantwell observes.
Cantwell says banks are increasingly resistant to lending more than $50 million in one tranche, so the more expensive projects now require complex deals to raise capital from various sources or by various schemes of arrangement.
"In some cases two banks might work together to raise more than $100 million, each providing half of the capital," he says. "At the same time, since the GFC banks have been more amenable to teaming up and providing funds to the right customers with a good credit and performance history."
The past few months have been "very busy" for Cantwell's team, who were involved in the change of ownership of two North Queensland islands and the disposal of a Geelong CBD building which houses Victoria's Transport Accident Commission (TAC).
Cantwell's team have advised a Swiss private investment firm, Pamoja Capital (acting on behalf of a Canadian philanthropic organisation, the McCall MacBain Foundation), on the purchase of Dunk and Bedarra islands for an undisclosed sum in the "mid-range" scale (based on a 2007 valuation which priced Dunk at $51.8 million and Bedarra at $24.8 million).
In other deals, reportedly worth about $80 million and $60 million respectively, Cantwell has advised the Brisbane-based FKP Property Group in its disposal of the TAC Building (which includes car parks, public space and retail tenancies) and an overseas-based private buyer on the acquisition of a commercial office building in Parkville leased to Monash University.
Cantwell, a member of the Victorian Division Council of the Property Council of Australia who chairs its State Taxes Committee (a role in which he regularly meets with the Victorian Treasurer), acknowledges weaknesses throughout the real estate sector. But he sees these as also providing a "renewed focus on opportunity for well-priced assets" with an increasing flow of new entrants, including listed companies, requiring the most up-to-date and constructive advice.
Increased foreign activity
This year's spate of divestments and acquisitions in property's middle ranges has enabled mid-tier firms like Lander & Rogers to advise cashed-up Australian clients to enter a scene where they can "buy assets at a reasonable price", according to its chief executive partner Andrew Willder.
Like Cantwell, Willder points to a growing incidence of transactions in the $50 million-plus range over the past two years, and he says trends in the immediate future will be guided by events in the retail and industrial sectors.
"Most retailers have slowed their expansion plans over the past 12 months, but sectors like home entertainment and hardware are doing better than expected, countering the downturn experienced by the larger retail malls," Willder says.
Willder, who also heads Landers' property, planning and environment group, says the firm enjoyed "a healthy level of work" at the start of the year in his specialised fields of advising listed and large private companies, retail property trusts, property developers, banks and other financiers. Currently the property group is carrying out due diligences on six separate deals of this type to an approximate value of $540 million.
"There have emerged many opportunities to tender for work to targeted clients, especially those benefiting from current government programs," he says.
Willder, with 28 years' experience in major commercial and retail property projects, has been involved in due diligence on major deals such as the acquisition by Wesfarmers of the Coles Group, which involved a plethora of issues such as obtaining consent of landlords across Australia and New Zealand for the transfer of leases which affected between 2500 and 3000 sites.
"As many as three to six documents are involved with each lease, including assignment deeds and paperwork connected with rent increases and the like," he says.
A similar real estate workload pertains at Baker & McKenzie, where Melbourne partner Bruce Webb, who for 25 years has practised in all aspects of property law (including planning, leasing, financing and tourism), is involved in acquisitions and sales of CBD buildings, shopping centres, large subdivision developments and hotel/resort and casino matters.
"Our clients are looking for renewed opportunities throughout the marketplace, including large funds placing assets for sale," he says.
Webb, who has advised on property aspects of the privatisation of government utilities, thinks many real estate values have hit bottom.
"Among my tasks is assisting clients in negotiating that gap between what vendors expect in the current post-GFC phase and the desire by buyers to pick up bargains," he says.
"There has been increased foreign activity, especially by European pension funds, over the past nine months as a result of perceived value, increasing yields and attractive Foreign Investment Review Board guidelines, and there has been increased tendering in hotel and tourism assets."
Key deals in which Baker & McKenzie has been involved include advising the Australian subsidiary of US company Delaware North in its acquisition of five resorts (including the El Questro Wilderness Park and Homestead in Western Australia and the Lizard Island Resort in Queensland) from Sydney-based diversified property trust GPT Group.
Appetite for property
Despite the many problems stemming from the GFC there remains a "broad stability" in the commercial real estate market, according to Cantwell, who points to a "lot of equity raising amid a continuing appetite for property".
Willder describes the real estate sector now as "getting stronger and more consistent, and performing much better than could have been expected", with mid-tier firms like Lander & Rogers continuing to represent "many large national clients" and "property generally in a more positive mode and more confidence than there was six months ago".
Long-time advisers in the real estate sector like Cantwell believe the market will "free up" but will remain challenging on several fronts.
Baker & McKenzie's Webb is mostly optimistic, pointing to continuing restructuring by property funds, with capital raisings to "prosper in GFC times".
"Banks have allowed funds to manage things in an orderly fashion, and there have been no major financial crashes," he observes.
Webb sees an immediate scenario of large infrastructure projects in areas such as water, transport and health, generating intense activity for project groups.
But most eyes continue to focus on the mid-range which all partners agree is the safest haven in an often turbulent real estate scene.
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