Commercial real estate could be poised for a transformative, post-pandemic period that would be a boon to companies that have the creativity to try new things and the legal teams that support them, McCarter & English Special Counsel James Barkley told Legal Dive.

In some ways the challenges that office properties in particular face would make it seem like a bad time for new lawyers to go into a commercial real estate practice and for a law firm like McCarter to focus on that as a growth area, but tough periods have historically been followed by periods of opportunity and Barkley says that can happen again. 

“Transitional times like this are always exciting,” said Barkley, who joined McCarter in July to help grow its real estate practice after serving as general counsel at commercial real estate giant Simon Property Group, one of the largest publicly traded real estate investment trusts with a market capitalization of about $46 billion. 

“You have a little trepidation going into them, but … real estate is going to change,” he said. “It’s going to morph into something else, and that gives people an opportunity to be creative.”

Real estate practice

One of Barkley’s goals will be to attract lawyers who specialize in commercial real estate to help him build a practice aimed in part at smaller real estate companies that want to grow aggressively but aren’t prepared to invest in the capacity that would be needed to manage the legal work in-house. 

“You may have a staff of one lawyer or you may not have any lawyer in-house, so you need to rely on outside people to do that kind of work,” he said. “Adding a significant legal function to your overall overhead is not an inexpensive endeavor so …  you use more outside counsel.”

At Simon, Barkley oversaw a sizable legal team with specialists in development, acquisitions and management, among other areas. That helped the company grow aggressively in a cost-effective way from a legal-work perspective.

“For young people who are wondering if they want to practice real estate law, [the transition markets are starting to go through] is a good story to tell,” he said. “They can be part of a transitional team that gets real estate to the next chapter.”

Strategic plans

For real estate companies or those that have big real estate holdings, the general counsel can be a key member of the leadership team by helping to advise from a strategic standpoint. But ranks of lawyers will be needed, in-house and in outside firms, to do the transactional work as companies look at property conversions and other creative moves to make real estate investments profitable in the shifting market. 

“You can look at a piece of dirt in one section of town and say that whatever is on it is not working, but it’s still a great piece of real estate because 500,000 cars pass by it every day,” Barkley said, “or the average income is high or whatever. So, that can morph into something simply because it’s a good piece of real estate.”

Strategic plans will be tempered by what companies can do on the basis of relationships, he said. If you’re overpaying for a lease, for example, because you no longer need as much space as before because of the rise of remote work, changing the terms of the lease will be constrained in part by the competing interests of the parties involved: the property owner, the tenant and the lender, for example. 

“Ultimately you have to convince everyone involved it’s in their best interest to follow along with you,” he said. “The lender or whoever is in the position has to decide … is that person the most qualified to try to bring this property back up to where it should be in order to justify the amount of the loan? There are all kinds of considerations that come into play, on all sides.”

The other consideration is legal; as creative as you might want to be, what you can do is constrained by the terms of the agreements. A good lawyer can go through these contracts to find the options available, but ultimately the terms are what they are. 

“The lawyer’s job may be two-fold,” Barkley said. “One is to try to find those options you might have, and two, to help the client bargain through that, determine whether they can hold onto the asset under terms they can find more favorable. The lawyer can serve that purpose but it’s no panacea; you can’t pull a rabbit out of your hat.”

The next growth cycle will be fueled by acquisitions, conversions and development as companies start getting a sense of what’s needed in a changing market, and all of that work will be reliant on teams of skilled lawyers, in-house and in outside firms.

So, while there’s a lot of uncertainty in commercial real estate today, the opportunities going forward are what make this an exciting time to get into this practice area, Barkley said.

“Those who are creative and have capital are going to make [these changes] happen and those teams that help them along are going to do well and have a lot of fun doing it,” he said. “Lawyers can play a key role in making that happen.”