More and more commercial real estate investors are relying on attorneys now that the market is getting increasingly competitive. One of the firms that has advised several in negotiating these deals is Raines Feldman LLP, which has offices in Beverly Hills and Irvine. We spoke with Andrew Raines, an attorney with the firm, who specializes in commercial real estate, and he told us why this is taking place. He also talks about CMBS maturities, investors from Asia and other topics.
What are some new requests that your clients are asking you for lately?
The newest thing that I have noticed in the last year is that our clients have been asking us to help them make decisions on an advisory basis, as well as a legal basis, due to the fact that we’re in the midst of so much deal flow. They’re asking us questions that they used to not ask us before, such as: “Should I go ahead with this deal? Do you think it’s a good investment?” That’s attributable to the activity in the market and the fact that they are eager to invest at a time that they believe it’s possibly going to get harder in the future. So they have a lot of urgent decisions to make, and their perception is that there is a closing window in which to make them.
So is this a newer request of law firms in general that was once reserved for other businesses?
It’s somewhat new. Traditionally, many lawyers would feel uncomfortable in that role. By contrast, we see ourselves in the general business-advisory practice. As well as being attorneys, we are counselors to our clients. I’m not surprised. It’s just that the occasional question of: “Do you think I’m making a good decision?” We’re now regularly asked this from our clients, and we are able to present alternatives that we see in the marketplace to our clients.
With leasing regulations in this environment, is it more of a landlord or tenant market?
One could say that it’s more of a landlord market, since there’s more activity than a couple of years ago. Landlords in good locations, especially in retail and restaurants, and other locations that have had a significant amount of growth, have been able to dictate significantly higher returns. But there are “A” locations and the rest of the world. In the rest of the world, it hasn’t changed significantly, and a strong-credit tenant will have leverage since they provide the cash flow that a landlord and a lender will need. It’s not as skewed as one might think if you’re just looking at the world from the Westside of Los Angeles.
How are the CMBS maturities impacting your clients?
Borrowers are not automatically refinancing using CMBS. There are more options and flexibility. Buyers are currently making decisions now that are not necessarily based on pricing. It’s more based on not wanting to go through defeasance or loan assumptions. So they may choose to not go with CMBS lenders because the interest rates are still comparatively low, but there is more flexibility.
On the multifamily side, there is a big chunk that would normally go into CMBS that goes to Fannie Mae and Freddie Mac because they are so attractive now.
You deal a lot with investors from Asia. Are there any property sectors or types of assets in which they are interested?
The Asia-based investors that we are dealing with are looking for hotels, very high-end-single-family residential and trophies of all types. You can sense when a market is reaching a peak or plateau when the trophies are shaking loose because there are owners that think that they can see the best foreseeable price during the cycle and decide to sell. That is happening more and more.