The folllowing article was submitted by Rick Daley, author of Real Estate Development Law and is featured in ALI-CLE’s The Practical Real Estate Lawyer.
I have spent the last 40 years practicing and teaching what I have always referred to as “real estate development law.” I have even written two editions of a textbook entitled Real Estate Development Law. One would think, therefore, that I, of all people, would have firmly in mind a nice, tidy definition of exactly what is meant by the term “real estate development law.” However, try as I might, I have yet to come up with such a definition.
Most areas of the practice can be defined by reference to the substantive body of law that serves as the foundation for the practitioner’s day-to-day activities. For example, we all think we have a pretty good idea of what securities law is all about—that is, a legal specialty that is centered on the application of the Securities Act of 1933 and the Securities Exchange Act of 1934. The same goes for most other defined areas of the practice—environmental law, estate planning, tax law, criminal law, etc. The well-defined bodies of law that serve as the context for those practice areas are summarized and explicated in legal treatises that line the walls of libraries in every law firm and law school in this country.
One can scan the shelves of those law libraries without ever finding a single book (save the ones I wrote for West Academic Publishing as part of West’s American Casebook Series) wholly dedicated to the topic of real estate development law. The reason for this is quite simple—real estate development law is a practice area that is defined not by matters of substantive law, but rather by the business activities of the lawyer’s client. In essence, real estate development law is nothing more than a massing of all those legal disciplines that a lawyer must call upon when seeking to help a real estate developer achieve its business objectives.
Real estate developers are impatient folks who have no tolerance for the rigor or niceties of legal specialties. As a young lawyer, I once made the mistake of pointing out to a developer client that his proposed project triggered a host of complex legal issues crossing several distinct practice areas. The developer looked me in the eye and said, “Son, I don’t really care which way the wind is blowing, just bring the damn ship in.”
Real estate development law is, therefore, all the “stuff” that a lawyer must know in order to help the developer client “bring the ship in.” On any given project, a real estate development lawyer may be called upon to advise a developer not only on traditional real estate law topics, such as the acquisition, leasing, and conveyance of real property, but also on matters involving all of the following legal disciplines:
- Tax law (federal, state, and local);
- Finance law;
- Contract law;
- Corporate, partnership, and limited liability company law;
- Securities law;
- Environmental law;
- Bankruptcy law;
- Government relations and public law;
- Land use and zoning law;
- Insurance law;
- Construction law; and
- Litigation (hopefully, precious little of this one).
Let me quickly dispense with the notion that a real estate development lawyer has the luxury of doing nothing other than managing so-called “experts” in each of the above disciplines. The economics of the real estate development business simply do not lend themselves to the use of a phalanx of lawyers, each of whom is a specialist in a discrete area of the law. The lead real estate development lawyer must have a strong working knowledge of each of the legal disciplines that comprise the area of real estate development law. Without such a broad working knowledge, the real estate development lawyer will simply not be able to help the client “bring the ship in.”
It is not, however, enough for a real estate development lawyer to master all of the areas of the law listed above. Dick Murphey, a brilliant lawyer and my former senior partner, once told me that a good business lawyer must first understand the client’s business. Dick’s point was that it is the business lawyer’s job to not only keep the client out of trouble, but also to create a legal platform to permit the client to achieve its business objectives—in other words, make money and grow and stabilize its business. There is no area of business law where my former partner’s wise words ring more true than that of real estate development law. A lawyer who purports to be an expert in all of the legal disciplines noted above will be an abysmal failure as a real estate development lawyer unless the lawyer is equally adept at understanding the business goals of the developer. A “legal expert” who disdains the practical day-to-day functioning of the client’s business may end up being a highly sought out speaker at bar association functions, but that same expert will not be equipped to help the client achieve its business objectives—and for that reason, the “expert” will never be a successful transactional business lawyer.
If you take only one thing from this article, it should be this:
If you want to succeed as a real estate development lawyer, you first need to understand the real estate development business.
For that reason, the first part of this article focuses on the nature of the real estate development business and the inherent risks associated with that business. Only when the real estate development lawyer fully understands the ins and outs of the development business can the lawyer expect to help the developer advance its business goals. The article then concludes with a discussion of the talent, skill, and knowledge that a successful real estate development lawyer must possess in order to properly serve the developer’s business interests.
The Real Estate Development Business
At its essence, real estate development is the process of crafting solutions to satisfy the real estate needs of a defined customer class (be it a fantastically prosperous global corporation or the ordinary Joe who lives down the street). The process starts with the developer identifying an unsatisfied customer need. Once that need is identified, the developer’s job then becomes taking an unproductive vacant tract of land and manipulating it in some fashion (by subdividing it, rezoning it, building a building on it, etc.) to satisfy the customer’s needs. This process of marrying a customer’s real estate needs with a newly-created real estate product is what the real estate development business is all about.
The value-add for which the developer is ultimately compensated is twofold:
- Its correct identification of the customer’s unsatisfied real estate need.
- Its design and execution of a business plan to meet the customer’s need in a cost-effective and apt manner.
This description of the real estate development business sounds much like that of any other business—that is, the business owner must divine the nature of the customer’s demand and then figure out a way to supply a product that best meets that demand. There are, however, two unique characteristics of the real estate development business that distinguish it from other business models:
- The real estate development business is, by its very essence, a LONG-TERM endeavor. Once the developer devises its business plan for the project, it then has to construct the building that is at the center of that business plan. The construction period of a commercial real estate project can last anywhere from six months (for a small warehouse building) to five years or more (for a major mixed use development). Moreover, the life cycle of a developer’s participation in a development project often spans a period of ten to 20 years after the construction of the project is completed.
- The real estate business is also an extremely CAPITAL INTENSIVE business. The cost of developing a 100,000-square-foot suburban office building typically runs anywhere from $10–$40 million, depending on the level of the building’s finishes and the geographical market in which the building is located. The real kicker is that all of these costs have to be funded by the developer upfront before the developer has any definitive sense of whether the project will prove to be a success.
The long-term and capital intensive nature of the real estate development business stands in stark contrast to most other consumer-based business ventures. Take for example, a small women’s apparel store where the store owner buys 20 red sweaters, puts them on display at the front of the store, and then waits to see if its customers gobble the sweaters up or move on to the next store. The store owner finds out in a matter of days or weeks whether the red sweaters are a hit. If they are, the store owner orders more sweaters. If the sweaters are not a hit, then the store owner writes off its investment in the 20 sweaters (maybe a thousand dollars) and moves on to its next marketing effort.
Contrast this with the situation faced by the suburban office building developer mentioned earlier in this section. The developer has to spend somewhere around $20 million at the inception of its office project before the developer knows the extent to which its targeted customers will like the project. In addition, it is quite likely that the developer will not know with any degree of certainty whether its project is a financial success for at least a few years after construction of the office building is completed (and, in many cases, ten to 20 years later).
So while the real estate development business is, at its core, much like every other business, the long-term and capital intensive nature of the real estate development business ratchets up both the quality and quantity of the business risk faced by the developer. If the developer makes a mistake in identifying its customer’s need or in designing and implementing a business plan to satisfy that need, then the developer will suffer for a long time and in a very big way. The real estate development lawyer’s job is to recognize and then mitigate the outsized risks that are an inherent part of the developer’s business.
Who Are the Developer’s Customers?
Like any other business, the real estate development business is driven by the needs, attitudes, likes, and dislikes of its customers. The old saw about “build it and they will come” never was true and certainly holds no sway in today’s dynamic global economy. The bankruptcy court records are replete with stories of real estate developers who ignored the basic needs of their customers, and, instead, became obsessed with building their dream projects in pioneering locations. No matter how beautiful or creative a particular real estate project may be, it will not work unless a customer deems it worthy of plunking down its real cash for the right to use or own that project.
Who then are the real estate developer’s customers? The developer’s customers can be broken down into two broad categories.
Tenants—These are the folks who are willing to pay rent to USE for a specified period of time all or a portion of a project created by the developer. Banks, law firms, technology companies, and other private sector tenants are the lifeblood of office buildings, warehouses, shopping centers, and other commercial real estate projects.
Buyers—These are the people who want to OWN the developer’s project because they believe that owning real estate is a good investment. These buyers (commonly referred to as “institutional investors”) generally come from the ranks of life insurance companies, pension plans, equity funds, sovereign wealth funds, and other financial institutions, both domestic and foreign, that have huge sums of money to invest in real estate each year.
The success of a real estate development project is predicated upon the developer’s ability to create a product that simultaneously satisfies the needs of both (1) tenants from the private sector, and (2) buyers from the ranks of the institutional investor community.
Sam Walton, the founder of Walmart, supposedly once said that “There is only one boss; the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” The real estate developer needs to accept and embrace the fact that there are two customers that can fire the developer—both the developer’s tenants and its institutional investors.
What Are the Customers’ Needs?
The needs of a real estate developer’s customers are subject to many of the same societal shifts and attitudinal changes that characterize the needs of the customers of any other business. Due to the lag time in the development and construction of a real estate project, the life cycle of a trend in the real estate business is usually longer than in other businesses. But make no mistake about it, trends do exist in the real estate business and any developer who ignores those trends will see its projects end up in the same trash heap as the pet rock and the beehive hair-do. Again, it is not the size, beauty, or location of the product created by the developer that is important, but rather whether the created product appropriately meets the needs of the targeted customer class.
What then are the needs of the developer’s two customers—that is, the private sector tenant and the institutional investor? The next section of this article looks at the general real estate needs of each of those customers.
Private Sector Businesses as Tenants
Private sector businesses usually opt to satisfy their real estate needs by leasing product created by developers. There are, of course, many exceptions to this general rule. By way of example, a company might choose to own a real estate project if the project must be highly customized to suit the company’s unique operational needs—for example, a manufacturing plant or a research and development facility. The norm, however, is for companies to meet their real estate needs by leasing and not owning that real estate. As such, the focus of this article is on a private sector business being a tenant customer of the real estate developer.
There are two basic reasons that support a company’s decision to lease (rather than own) the real estate it needs to operate its business.
- It costs less for a company to lease real estate than it does for it to own the same real estate (at least in the short-term). Private sector companies generally want to preserve their financial resources to fund the operation and growth of their core businesses and not the acquisition and ownership of real estate.
- For similar reasons, companies generally do not want to deploy their human resources to deal with the myriad of operational and financial issues and risks involved with the ownership of real estate—for example, the replacement of a leaky roof, the retrofitting of an obsolete air conditioning system, or the disposition of unwanted real estate assets. It is easier for a company to lease real estate and leave all of those risks to developers or financial institutions who are accustomed to dealing with real estate issues.
At the risk of stating the obvious, it is the rent paid by the tenants of a real estate project that creates the value inherent in that project. The rent must be sufficient to cover the project’s expenses, plus provide a profit to the developer to compensate it for the entrepreneurial risk it took in developing the project in the first instance. While no real estate project is risk-free, the real estate developer can significantly ameliorate the risk of a real estate project by leasing it as soon as possible to creditworthy tenants. With this tenet in mind, it is easy to see why developers thirst for the opportunity to have creditworthy private sector companies as tenants in their projects.
Institutional Investors as Buyers
Life insurance companies, pension plans, and other foreign and domestic financial institutions have vast cash resources that they need to invest to achieve the financial return targets set by their governing boards. The managers of these institutional portfolios seek to diversify their investments among different asset classes (for example, stocks, bonds, commodities, and real estate), so that they can avoid compounding the risk associated with the poor financial performance of any one class of assets.
Institutional investors look for two things when they invest in real estate:
- Current operating profits represented by the excess of rents over property expenses (“net operating income”); and
- An increase in the value of the real estate over the investor’s cost of acquiring and carrying that asset (residual value).
The price the institutional investor is willing to pay for a real estate asset is directly tied not only to the amount of the net operating income and residual value flowing from that asset, but also to the relative predictability that the projected income and value will be realized. Stated differently, the more confident the investor is that the expected income and value will be achieved, the higher the price the investor will pay for the underlying asset. To the extent the investor believes that the asset’s achievement of the projected financial performance is somewhat risky, the acquisition price will be reduced accordingly. At some point, the investor’s lack of confidence in the predictability of the asset’s financial performance may lead the investor to decide to back away from making any investment in the subject real estate asset.
Institutional investors seek to lessen the risk associated with their real estate investments by insisting that any project acquired by them be institutional-grade. An institutional-grade real estate project is one where:
- The creditworthiness of the project’s tenant roster is sufficiently solid as to give the investor comfort that the expected income stream from the project will be realized; and
- The project location, design, and quality of construction are such that it is reasonable to assume that replacement tenants will be found if and when the existing tenants vacate the project.
The price that an investor is willing to pay for a particular real estate asset is directly tied to where that asset falls on the institutional-grade continuum.
An institutional investor’s purchase of a project is almost always the developer’s ultimate exit strategy for that project. The institutional investor’s purchase of the developer’s created project provides the developer with an opportunity (1) to wring out the last dollar of profit from its created project, and (2) to end all the developer’s risk on that project.
The real estate developer must at all times during the course of its development of a particular project keep in mind not only the needs and wants of the tenants it is wooing for that project, but also the needs and wants of the investors who will provide the developer with its exit strategy for that project. If the developer disregards the needs of the institutional investor community by failing to develop an institutional-grade property, then the developer’s exit strategy might disappear. An otherwise well-executed project can very quickly fall into the “loser” category if the absence of an exit strategy leaves the developer in limbo and, hence, exposes the profitability of its project to erosion from unanticipated future market risks (think Great Recession of 2008).
The Real Estate Development Process
The development of a real estate project requires the coordinated efforts of a number of real estate professionals in addition to the developer. Virtually every development project involves the efforts of the following players:
- Design professionals (architects, engineers, and space planners);
- Construction professionals (general contractors, subcontractors, and suppliers);
- Finance professionals (financial analysts and accountants);
- Risk managers (property insurers, title companies, surveyors, environmental engineers, wetlands consultants, and appraisers);
- Lenders and institutional investors (banks, life insurance companies, pension funds and private equity funds);
- Operators (real estate brokers and property managers); and
- Public sector participants (economic development officers and code compliance officials).
The role the developer plays in the real estate development process is analogous to the role of the conductor of a symphony orchestra. It is the developer’s job to select the various members of the orchestra (all the “players” described above); to provide them with the sheet music for the performance (the overall development plan); and to coordinate the nature, timing, and scope of the performance of each of the players. Upon the completion of a successful performance, the conductor takes a bow amidst a standing ovation—and the real estate developer makes a hefty deposit of cash at its local bank.
In the book Towers of Debt, The Rise and Fall of the Reichmanns: The Olympia & York Story (1993, p. 19), Peter Foster neatly sums up the developer’s role in the following manner:
They are not necessarily architects or contractors, engineers or financiers, but their skill lies in bringing these specialties together to satisfy the demands of those who need space to carry out their businesses. They do not draw up blueprints or erect steel or pour concrete, but they cause these things to happen.
Every real estate development project has as its genesis a developer-generated vision of how to best satisfy a real estate need of a targeted class of customers. Sinclair Lewis characterized this “vision” in the following caustic terms in his book Babbitt (1922, p. 40):
Babbitt spoke well—and often—at these orgies of commercial righteousness about the “realtor’s function as a seer of the future development of the community, and as a prophetic engineer clearing the pathway for inevitable changes”—which meant that a real estate broker could make money by guessing which way the town would grow. This guessing he called Vision.
The stereotypical real estate developer is Charlie Croker, the lead character in Tom Wolfe’s book A Man in Full (1998) Charlie was an ex-All American football player, who was able to parlay his status as an athletic hero and an all-round “good old boy” into the creation of a real estate empire and the acquisition of all the toys symbolic of his position at the top of the real estate heap.
Unfortunately for Charlie, he forgot about the “customer” thing, fell in love with a real estate product (a pioneering high-rise office building far outside the Atlanta business district), and ended up having all of his toys auctioned off to the highest bidder by his lender.
Today’s real estate developers (at least the successful ones) are a far cry from the Charlie Croker and Babbitt stereotypes. The business is now dominated by Harvard and Duke MBA grads (and I dare say a fair number of law school grads) and not by glad-handers and back-slappers like Charlie Croker. The “vision” possessed by today’s developer is not simply a matter of Babbitt’s gut instinct (although I would be remiss if I did not recognize the importance of an “educated gut” in the development business), but more a function of a detailed analysis of demographics, logistics, financial returns, and market research. The aspiring real estate development lawyer is, therefore, forewarned that the lawyer’s future client is likely to be someone who can not only talk about “dirt”, but is also equally conversant on the topics of discounted cash flow, commercial mortgage backed securities, preferred returns, and tax increment financing.
The Real Estate Development Lawyer
A real estate development lawyer’s job is to represent the interests of the developer in all aspects of the real estate development process. In this respect, the role of the real estate development lawyer is similar to the role played by a merger and acquisition specialist, securities lawyer, or any other transactional business lawyer. The lawyer assumes primary responsibility for papering the terms and conditions of the client’s business transaction and advising the client on how best to deal with the various business and legal risks inherent in that transaction.
A real estate development lawyer’s practice is, however, markedly different in a number of respects from the practices of other transactional business lawyers.
- The real estate development lawyer is involved in virtually every aspect of the client’s business. A banking lawyer handling a structured financing arrangement for a retail clothing store has little, if any, reason to be overly involved with or knowledgeable about the client’s core business. Because the real estate development business is essentially nothing more than an endless stream of legal transactions, the real estate development lawyer is continually immersed in the developer’s business activities. As such, the mantra introduced at the inception of this article about the necessity of understanding the client’s business takes on heightened significance for the real estate development lawyer.
- A real estate development lawyer must be proficient in a number of legal fields in order to effectively represent a client. The practices of most transactional lawyers involve specializing in one limited area of the law—for example, banking law for the lawyer mentioned above who is handling a debt offering for a retail client. That degree of specialization is not feasible for a real estate development lawyer. The nature of the real estate development business is such that a lawyer representing a developer must have a thorough comprehension of a broad array of legal disciplines, including real estate, tax, securities, finance, environmental, bankruptcy, zoning, construction, and partnership law.
- A real estate development lawyer generally must “go it alone” in representing a developer. Unlike a merger or a securities offering, most real estate development deals cannot support an army of highly-specialized lawyers. Both the economics and intertwining nature of the various components of the real estate development process dictate that the real estate development lawyer not only assume direct hands-on responsibility for the structuring of the development deal, but also for the deal’s execution.
- A real estate development lawyer’s actions can have a dramatic impact on the profitability (or lack thereof) of a developer’s development project. The lawyer handling the clothing merchant’s debt offering does not have any real impact on how many sweaters the client sells. It is the color, style, and composition of the sweater that dictates the profit the client derives from its sweater sales. In the real estate development business, it is as much the developer’s skill in managing the risks inherent in the development process as it is the nature of the product produced by that process that ultimately dictates how much money the developer makes on the project. The real estate lawyer’s efforts have a direct impact on the quality of the developer’s risk management efforts and, hence, on the overall success of the developer’s project.
The differences noted above between the practice of the real estate development lawyer and that of other types of transactional business lawyers are intended to be just that—differences between practice types, without any value judgments being made as to which practice type is more interesting, challenging, or lucrative. “Beauty truly is in the eye of the beholder” when it comes to a young lawyer’s selection of a practice area. As a lawyer who has spent my entire career representing developers, I do, however, admit to a bias in favor of real estate development law.
The Roles Served by a Real Estate Development Lawyer
The real estate development lawyer plays a wide variety of roles in the representation of a developer. Each of those roles requires the lawyer to learn and continually fine-tune a diverse set of skills.
I love to read trashy lawyer novels for the pure escape value of reading about lawyers who not only devise ingenious legal strategies, but also end up physically taking down the bad guy. I find the following passage in the Steve Martini novel Double Tap (2005, p. 182) to be wonderfully descriptive of the essence of being a transactional business lawyer:
What do you think I should do? You can hurdle the bar exam and sally forth to spend decades in front of the bench. You can deflect thunderbolts tossed by the gods in black robes and do battle daily with other lawyers. But in the end it is this question posed by [a client] that is the riddle most feared by every attorney I have ever met.
Rest assured that your developer client will frequently ask you that fear-inducing question—what do you think I should do? Moreover, the question will not be limited to so-called “legal” issues on which you can wax eloquently for hours without ever coming to any real conclusion. No, the developer is much more likely to ask you the dreaded “what do you think I should do” question about fundamental business issues, such as whether the developer should waive the contingencies in a purchase contract and proceed to close on the purchase of a multi-million dollar parcel of land. While the real estate development lawyer cannot make the decision for the developer, the lawyer must be willing to step up and give honest, unvarnished advice when the developer asks for it. Trust me when I tell you that developers do not tolerate lawyers who are incapable of providing direct answers to the client’s equally direct questions. When the inevitable question is asked by your client, just keep in mind the admonition leveled at me by the client I mentioned at the outset of this article—“Frankly son, I don’t care which way the wind is blowing, just bring the damn ship in.”
The real estate development lawyer is responsible for concocting the deal design and structure for a real estate project. The structure ultimately put in place by the lawyer must be tax-efficient and consistent with the developer’s tolerance for risk. The structure must also effectively integrate all of the developer’s relationships with the other project participants—that is, lenders, investors, construction and design professionals, etc. Finally, the selected structure must provide the developer with an acceptable exit strategy at each stage of the deal. The development of the right deal design requires the lawyer to marshal not only a thorough working knowledge of real estate, tax, and partnership law concepts, but also a full understanding of the client’s business and financial condition.
Risk vs. Reward Analyst
As mentioned earlier in this article, the success of any real estate project is dependent on how well the developer manages project risk. The real estate development lawyer should take the lead in identifying and then dealing with all project risks in a fashion that is appropriate within the context of the particular deal. This does not mean that it is the lawyer’s role to eliminate all risks attendant to a particular real estate project. In truth, the only way to eliminate all project risks is to kill the deal—something that bad lawyers do way too often. The real estate development lawyer’s job is to lead the developer through a risk-reward analysis, so that the risks ultimately taken by the developer are reasonably justifiable in light of the potential rewards to be derived by the developer from its participation in the project.
The real estate development lawyer usually serves as the developer’s chief negotiator on all deal issues (legal and business). In performing this role, the lawyer must put aside the competitive drive to “win” every issue and instead focus on those issues that are essential to permitting the developer to move forward with the project. Nowhere is the concept of a “win-win” outcome of more consequence than in the context of a real estate development deal. In an effort to produce such a “win-win” result, it is incumbent upon the real estate development lawyer to not only understand the developer’s business objectives, but also those of the business person and lawyer sitting on the other side of the table.
If a lawyer is going to be successful in the practice of real estate development law, the lawyer must master the art of communicating in writing in a clear and concise manner. One only needs to look at the mounds of documents cluttering the table at a real estate closing to realize that a real estate development lawyer without exceptional drafting skills is like a singer with laryngitis.
Every client occasionally needs its lawyer to act as the “bad cop” when trying to enforce the provisions of a contract. It is crucial for the real estate development lawyer to keep this fact in mind when designing the structure of the client’s development deal. If the lawyer crafts documents that are both clear and concise (meaning that they can only be interpreted in one way—the way the developer wants them to), then the task of enforcing the developer’s rights should prove to be a relatively easy matter. If, however, the lawyer produces meandering documents that are open to multiple interpretations (including those that do not favor the developer), then the lawyer should consider pursuing a career as a litigator and not as a real estate development lawyer.
Ten Characteristics of a Successful
Real Estate Development Lawyer
The following are ten characteristics that a successful real estate development lawyer must possess:
- The lawyer must have a sound understanding of the entirety of the business deal and, in particular, the project economics of that deal;
- The lawyer must have a solid working knowledge of the multiple legal disciplines that impact a real estate development deal—that is, real estate, tax, finance, contract, securities, environmental, bankruptcy, public, zoning, insurance, construction, and public law;
- The lawyer must be able to communicate the developer’s positions in writing in a clear, concise, and strategic manner;
- The lawyer must be a deal maker and not a deal-killer;
- The lawyer must be able establish and maintain solid mutually respectful working relationships with all of the players in the real estate development process;
- The lawyer must never hide behind the law when the developer asks for advice;
- The lawyer must avoid the temptation to show off by overlawyering a deal;
- The lawyer must have both the judgment and the inclination to make quick decisions;
- The lawyer must feel comfortable working alone, without the safety net provided by the presence of a multitude of supporting lawyers; and
- The lawyer must understand that success is measured not by the brilliance and creativity of the lawyer’s deal structure or by the comprehensiveness of the lawyer’s documents, but rather by how well the deal structure and documents serve the client’s business objectives.
Choosing a Career in Real Estate Development Law
I thoroughly enjoyed my career as a real estate development lawyer. I had a blast representing developers (they are definitely interesting folks) and made a few bucks along the way. But I do not want you to just take my word about how cool it is to be a real estate development lawyer. Here are several reasons why you might want to think about a career in real estate development law.
- The fundamentals of the real estate development business model are strong and enduring (which is a good thing for a lawyer who represents developers). People and businesses will always need shelter to live and work. The nature of that shelter will continue to evolve as technology becomes an ever-increasing part of our daily lives and the millennials replace the baby boomers as the dominant consumer generation—but shelter of some type will still be needed.
- Real estate is an attractive investment alternative to institutional investors. While real estate is certainly a cyclical industry (witness what happened during the Great Recession of 2008), the industry always makes a comeback once the supply and demand curves attain an acceptable equilibrium. From the perspective of the institutional investor community, investing in real estate produces a better yield than an investment in Treasury notes and a less volatile return than an investment in stocks and bonds.
- The real estate development business is local in nature and cannot be successfully conducted or dominated from a high-rise office on Wall Street. The “local” nature of the business means that there will always be plenty of work for real estate development lawyers in each geographic market.
- Similarly, the real estate development business is not capable of being outsourced to areas outside of the United States. “Boots on the ground” are an essential component of the real estate development business.
- The real estate development business really is a “big deal.” The Census Bureau’s seasonally-adjusted annual estimate of spending on new construction in the United States in 2017 is $1.23 trillion, with the commercial real estate sector contributing almost $434 billion of that amount (see Census Bureau News – Value of Construction Put in Place at a Glance, May 1, 2017).
- The real estate development business is intensely legal in nature. The business is an endless stream of legal transactions ranging from the initial acquisition of the project land, to the construction, leasing, and financing of vertical improvements, and, ultimately, to the sale of the project. It falls to the real estate development lawyer to negotiate and paper the deal at each stage of the project’s development. This is especially true in the increasingly complex arena of the commercial real estate practice. All of this means one very important thing for the real estate development lawyer—FEES and plenty of them, and, if you get lucky, maybe a right to participate in the venture’s profits.
- You do not have to slave away at a BigLaw shop with hundreds of other lawyers to practice real estate development law. In fact, the most successful real estate lawyers I know practice with small boutique firms where jeans and t-shirts are the norm rather than a suit and tie.
- You get to visit construction sites and wear a hard hat.
- Finally, working with and around real estate developers is a hoot. A developer is the embodiment of the entrepreneurial spirit—bright, creative, and fun-loving. The best part is that the lawyer on occasion gets to drive by a building and say to family members “I helped make that.” Top that one, litigators.
There is no precise definition of the area of practice known as real estate development law. At its most basic level, real estate development law is the compendium of knowledge and skills that a lawyer must possess in order to help a real estate developer achieve its business goals. A real estate development lawyer must have not only a thorough understanding of a number of substantive areas of the law, but also a solid working knowledge of the development business. Always remember the mantra—If you want to succeed as a real estate development lawyer, you must first understand the real estate development business.
Rick Daley is the author of Real Estate Development Law (2nd edition, West Academic Publishing, 2017). Rick practiced transactional business law in the private sector for 25 years, first for 12 years with the predecessor of the Squire Patton Boggs law firm, and then for 13 years as Executive Vice President and General Counsel for The Pizzuti Companies, a regional real estate development company headquartered in Columbus, Ohio. Following his retirement from the active practice, Rick joined the faculty of the Moritz College of Law at The Ohio State University, where he spent ten years teaching courses on Real Estate Development Law, Commercial Leasing, and Drafting Business Contracts. In 2013, the Moritz College of Law students gave Rick the Morgan Shipman Outstanding Professor Award. In 2014, he received the Provost’s Award for Distinguished Teaching by a Lecturer and was inducted into the Academy of Teaching at The Ohio State University. This article is an edited excerpt from Rick’s upcoming Real Estate Development Law book, edited and reprinted with the permission of West Academic. The book is available for purchase at http://store.westacademic.com, ISBN 9781683281269.