Dear Friends of Duval & Stachenfeld:
Every now and then we let you know what is going on with our law firm and, since we are involved throughout the entire real estate world, our update also includes a great deal about what we see going on across the real estate industry.
Opportunity Zones: This is an extremely active space.  As you may know, we have formed an Opportunity Zone HUB to match together sponsors with deals with investors with capital.  At first, there were a lot of sponsors and precious few investors, but that has reversed.  We now see about the same number of parties with dollars to invest as there are transactions.  And – sticking our necks out a bit – as the year comes to a close and Opportunity Zone timing restrictions come into real view, we think we might see more investor demand than there are “good” deals in Opportunity Zones.  Jessica Millett (Tax Chair), whom we have named “The Wizard of OZ,” is leading this initiative with Managing Partner and Real Estate Practice Group chair, Terri Adler.  As an industry leader in the OZ space, we are representing clients in setting up Qualified Opportunity Fund structures, handling Opportunity Zone developments, and advising numerous clients in determining Opportunity Zone strategies.  Lastly, we are seeing more and more parties invest in operating businesses located within opportunity zones.
Co-Working and WeWork:  Co-working is front and center in the real estate world, as everyone is reading pretty much hourly news on WeWork’s travails and wondering how it will affect co-working and, possibly the greater real estate world.  Our view is that whatever happens with WeWork, co-working is certainly here to stay; the critical question is which of the many parties in the space will survive and make money.  As Bruce Stachenfeld has written before in The Real Estate P
hilosopher™, we think that co-working is not “a new business”; instead, it is “a new way of doing business.”  This means that many players will be in the space and indeed one could envision almost all significant landlords having a portion of their buildings devoted to co-working, which they operate either themselves or through a third party, and the upside being allocated anywhere from a traditional lease to a so-called “hotel model.”  Our leasing group has a great deal going on in this space, including representing co-working clients and representing landlords engaging in transactions with co-working clients.  It is a very hot area at D&S.
Bubble/Distressed Real Estate:  We are seeing increasing (ominous) signs that the almost-free money situation in world markets is distorting the real estate markets in various ways.  We suspect that when the current monetary bubble pops (i.e. when free money turns into an inevitable cash crunch) there will be a dichotomy between (i) cash-flowing real estate, to which money will eagerly flow because a 5% return from cash-flowing real estate will appear a lot better than a 1% (or less) return from other investments and (ii) non-cash-flowing real estate, which will struggle to find capital and will likely become distressed. There is already evidence of this happening in the public markets – as cash-flowing REIT’s have been a high-performing asset class – and in the private markets – as non-cash-flowing real estate (such as luxury condominiums) have been taking significant valuation hits.  Our Distressed Real Estate Practice Group is standing in the wings ready to (i) help clients that are in trouble and (ii) help clients seeking to capitalize on distressed real estate.  We handled a lot of distressed matters during the last downturn and are ready to do it again.
Climate Change and Real Estate:  Climate change is now a major real estate trend.  New York City has been seeking to lead the way with its recently enacted groundbreaking climate legislation (the Climate Mobilization Act) that will require medium to large sized privately owned buildings in NYC to reduce greenhouse gas emissions. The goals are ambitious – a 40% reduction of greenhouse gases from (most) buildings in NYC by 2030 and an 80% reduction by 2050.  We think this is just the start of a major trend, as we foresee other cities following New York City’s lead and moving in this direction.  Of course, there is a positive outcome (the health of our planet will be enhanced), but for real estate players, they have to contemplate the cost of compliance and the allocation thereof among the various players in the capital stack.  In New York City, clients are understandably concerned about the costs and methodologies of compliance with the Climate Mobilization Act, so we at Duval & Stachenfeld have assembled an NYC Climate Mobilization Task Force to assist our clients in getting on top of this statute and its implications and ramifications, which could become a very expensive proposition for owners of real estate in New York.  You can find information on our task force here, which includes a short Q&A on the new legislation and an in-depth White Paper.
PACE Financing:  Dovetailing with the climate change initiative is Property Assessed Clean Energy (PACE) Financing.  In a nutshell, and speaking loosely, it is statutorily enacted by different jurisdictions (i.e. states) and allows for below-market financing to pay for the cost of improvements to real property that are environmentally helpful.  This is just starting out now, but we predict that soon PACE financing will become a standard concept to be contemplated in many (maybe even most) real property financings in the United States.  Even if the property in question doesn’t end up having PACE financing on it, we think it will be on every borrower’s and every lender’s checklist as something to be thought through. Tom O’Connor, who chairs our Finance Practice Group, is one of the industry leaders in PACE financing.  He has been on the front-line since the start, including lecturing, presenting and writing industry articles.  You can find more information about PACE, including our PACE White Paper, here.
Rent Regulations for Housing:  Housing has become part of a nationwide debate regarding whether citizens have a "right" to affordable options.  We do not like to be political at our law firm, so we will not weigh in on whether this is “good” or not, but we will say that this trend may be picking up speed.  This is certainly what happened in NYC, when dramatic changes to rent regulatory laws caught the real estate industry by surprise and, in one fell swoop, wiped out a guessed 25% of the market value of rent-stabilized properties.  We are confident that New York City will not be the only location where this type of result occurs, so we advise our clients to be mindful of the implications.
(Good Old) Corporate Real Estate / Joint Ventures:  The trend of real estate players engaging in transactions through a co-venture structure seems to just keep on going – and this after about twenty years since it really started to take off.  A trend lasting that long is unusual, but it seems to be picking up speed as now, in addition to traditional joint ventures, there are platform investments, programmatic arrangements and real estate technology type investments (more on that below).  Over the years, our clients have greatly benefited from the expertise provided by our crown jewel Corporate Real Estate/Joint Venture practice.  In this area, we focus not only on the legal issues but also are mindful of the fact that the joint venture space is fertile ground for our core mission “To Help Our Clients Grow Their Businesses".  Since we have relationships with numerous players throughout the real estate investment universe, we are able to add a lot of value.
Real Estate Technology and Disruption:  For the first time in a hundred (a thousand?) years the real estate world is being legitimately disrupted.  The wall of capital moving towards the real estate technology industry is enormous and seems to be just getting started.  We see mega-sized players, as well as fledglings, all taking ideas very seriously.  Things we wouldn’t have even thought of a few years ago are now being eagerly discussed, such as real-estate-as-a-service, selling blockchain or other interests in individual buildings, so-called “hotelization", and so much more.  And, in our view, the dizzying pace of change is just getting started.  There is that famous quote from Bill Gates, which seems appropriate:
“Most people overestimate what they can do in one year and underestimate what they can do in ten years.”
In this vein, we think that real estate in ten years will look dramatically different than it does today.  This will create major winners and major losers.  Those who are the most informed and thoughtful will have the greatest chance of being the winners.
We admit that it is presumptuous of us to say that we are truly “Reinventing the Law Business;” however, our mission statement has caught fire among our clients.  That mission is this – in just six words:
      Help Our Clients Grow Their Businesses
We know that when our clients wake up in the morning they aren’t thinking “oh gee, if today I could interact with my lawyers, it will be the best day of my life!”
No, they aren’t thinking about that.  They are concerned about their real estate business.  How to get money and once they get it how to deploy it.  How to find deals.  How to hire the right people.  How to find a job.  How to find the right strategic relationships.  How to market themselves.  How to differentiate themselves.  How to get above-average risk-adjusted returns.  How the trends sweeping the real estate world are going to affect them.  How they can create value.  How they can create and own useful intellectual capital in the real estate industry.  And much more.
We think a law firm that “just” does high-quality legal work has value; however, a law firm that also helps clients solve its business issues and truly build its business is the right vision for the law firm of the future.  
And, yes, we are sticking our necks out here in saying that this is exactly what we are doing and our clients are loving it.
The year is not yet over, but we estimate that the firm will handle close to 500 real estate matters.  Here is a quick snapshot of what our attorneys are working on:
  • We have closed or have ongoing over 20 Opportunity Zone transactions, and the number keeps growing.  This includes everything from individual sponsored transactions, to fund-raises, to multi-asset transactions.  Although the majority of these transactions are real estate projects, we do have a number of clients putting together QOFs to invest in operating businesses in Opportunity Zones. In addition to the transactions themselves, we have made it our business to develop relationships with virtually all of the significant players, irrespective of whether they are our clients. 
  • We have nearly $250M of PACE financings – affecting over $2B of projects – currently in the office and we are advising clients making PACE loans, borrowing from PACE lenders, and lenders contemplating the impact of PACE financing on loans in the same capital stack on projects with PACE lenders.
  • We admit we haven’t added it up very carefully, but suspect there is over $10B of active real estate transactions in our office right now.
  • Our Land Use Practice, chaired by Robin Kramer, has been very busy.  In the past few months alone, Robin closed the transfer to the City of the second (and last) phase of the waterfront  plaza for the Douglaston development at the Edge/2 North 6th Place in Brooklyn; just last week she obtained common law vested rights from the BSA  for a hotel at 26-30  W. 39th Street to allow it to continue to be developed without having to comply with the new zoning requirements for hotel construction in manufacturing districts; and in August, she obtained City Planning Commission approval of a special permit for a client to build a 2 story addition where it would not be permitted as of right.
  • Our leasing team has handled over 250 leases so far this year.  
  • We have over 50 active joint venture/corporate real estate transactions ongoing right now.  
The Firm has a blue-chip base of clients, including leading investment banks and funds, major public companies, developers, international apparel companies, power industry companies, and tax-exempt clients that we are proud to represent.  You can see our representative client list here.
One thing that never – ever – changes, is our hedgehog.  It is our unifying principle and stands for the proposition that we care deeply about our lawyers and our clients, and it is not just because clients give us money and lawyers bill hours.  It is that there is something special in the relationship.  When someone joins our firm as an employee or a lawyer – or becomes a client of our firm – they are special to us.  We look out for them through thick and thin.  That is what our hedgehog is about.     
Corporate Real Estate Partner
Tax Special Counsel
NYC Real Estate Tax
and Incentives Chair

New Associates

In the past year, we have added seven new associates to our Real Estate, Tax, and Litigation practices.

Click the links below to see our latest awards, recognitions, published articles and more!
D&S Latest Awards & Recognitions
D&S Attorney Published Articles, Podcasts, CLEs & More
Best regards,
Terri Adler, Managing Partner
Bruce Stachenfeld, Chairman
Caitlin Velez, Chief Operating Officer
Copyright © 2019 Duval & Stachenfeld LLP, All rights reserved.

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