Law Firm Courts Clients In Distress

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PROFILES: From real estate attorneys to auctioneers, some business people have managed to make the down market pay off.

Leave it up to attorneys to find an upside to the down.

Whether it’s complicated debt restructurings, foreclosures or equity injections for stalled developments, top L.A. law firms are finding that the real estate bust can be just about as profitable as the boom.

And one standout is the real estate group of international law firm Gibson Dunn & Crutcher, based in downtown Los Angeles, and co-chaired by local attorney Jesse Sharf.

Locally, the real estate group totals 30 strong, juggling work for lenders, investors and developers, among others.

Downside work started to trickle in three years ago, but it was the collapse of credit markets in summer and fall 2008 that triggered a major shift to distressed deals.

“The shut-off of the debt markets really triggered everything,” said Sharf, 47. “It generated a ton of work for us.”

These days, for nearly every business touched by real estate, there are problems to sort through. Sharf’s clients include banks and financial institutions such as JPMorgan Chase, local developers such Woodridge Capital Partners and investors such as Oaktree Capital Management.

Some matters sound simple enough, but even a seemingly straightforward foreclosure can be fraught with peril. For example, Sharf is working for a client on a single foreclosure but it involves dozens of projects. (An example would be a loan tied to a portfolio.) And there is always the possibility that the borrower could stymie the foreclosure by filing for bankruptcy.

Matthew Schwab, managing director of West L.A. real estate investment firm Karlin Real Estate LLC, said successful real estate attorneys have something in common.

“The really good ones have a great business sense. Strategically, from a negotiating standpoint, they add value because they understand the business decisions,” said Schwab, noting that in a foreclosure, for example, the attorney should outline the risks, costs and time frames for various scenarios.

“They are very important, because the foreclosure process is just that: a process. You want someone to give you the road map to get you to the other side as quickly and as cost effectively as possible,” he said.

Sharf said that while his department is very busy, the work is “choppier and less annuity-like” because it is dependent on market conditions and other variables. Still, about five to 10 times a week, he gets a phone call from a real estate player who is in some sort of trouble.

The collapse of the real estate markets over the last few years was not Sharf’s first brush with distressed work. He joined the firm about a year before Black Monday, when the Dow lost more than 500 points Oct. 19, 1987. He was just in time to experience a deep economic decline that lasted several years.

He said it was an invaluable experience that prepared him for the recent recession.

“If I hadn’t learned from the last cycle, I’d be a novice now,” said Sharf, who graduated from New York University School of Law in 1986. “It’s educational. We all get smarter by virtue of doing this.”

Sharf believes his group has at least another couple of years of distressed work, whether or not the economy is technically in a recovery. He noted the lack of an entity like the Resolution Trust Corp., which was created by Congress in 1989 to speed the liquidation of assets of failed savings and loans.

While Sharf expects eventually to return to the sort of transactional work real estate attorneys take on during boom times, he said that may not occur before a day of reckoning for commercial real estate.

“By that I mean a much more radical resetting of values than has existed before,” he said.

Either way, there will be business for the real estate department at Gibson Dunn.

Real Estate Department, Gibson Dunn & Crutcher LLP

Downtown Los Angeles

The Job: Debt restructuring, foreclosures and equity injections for troubled

real estate

Clients: Banks, developers, investors and others

Experience: Group headed by attorney Jesse Sharf, who joined Gibson Dunn in 1986 and became co-chairman of the department in 1997

Compensation: Undisclosed, but attorneys like Sharf can charge about $800 per hour

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