SPECIAL REPORT: Top law firms revealed for Europe’s large-cap deals

Who advised on the legal side of Europe’s biggest property deals last year? PropertyEU has again tracked which law firms acted on the 25 largest transactions.

For the second year in a row, we have produced a law firm tracker for the largest real estate transactions to have taken place in the calendar year. Designed to provide readers with a guide to which advisers were active in 2019 on both the buy- and sell-side, it has already become an anticipated fixture in the annual editorial calendar.

Law firms tell us the ranking is unique in European property, providing them with a way of benchmarking their own position in the large-cap end of the market. The law firm tracker is compiled in-house.

Using our own data and resources, we draw up a table of the 25 largest transactions in the public domain or ones about which we have been informed. We then research directly with legal advisers to ascertain legal counsel that worked on both sides of the transaction.

Most of the entries have been corroborated with the advisers in question, or desk research has been utilised where that was not possible. The result is a mini league table of law firms that acted on more than one of the top 25 deals. This time, we record 12 law firms that advised on two or more transactions, the same as in the previous year.

Interestingly, we see seven names reappear in the 2019 ranking that featured in the inaugural 2018 version, suggesting these firms are recognised in the market for large or complex transactions (though they are by no means restricted to large-cap deals).

Those firms are Clifford Chance, Allen & Overy, CMS, Dentons, Linklaters, Freshfields Bruckhaus Deringer, and Herbert Smith Freehills. Clifford Chance again ranks Number One.

Five newcomers
Making a first appearance are Greenberg Traurig, Linklaters, Simpson Thacher & Bartlett, Hengeler Mueller of Germany, and Gide of France. The minimum deal value to make the cut for the top 25 deals is €880 mln. This has risen from €550 mln in 2018.

It might interest readers to know that had we recorded deals from 25-30, then Freshfields would be joint second with Allen & Overy on 5 transactions, CMS would be on 4, Greenberg Traurig on 3, and French firm Lacourte Raquin Tatar on 2. Those deals involved the Majunga Tower in Paris, Infarr’s purchase of an international portfolio, the ADO Properties merger with Adler Real Estate, Deutsche Wohnen’s acquisition of 2,839 apartments in Germany, and DWS’ investment in eight student housing assets in the UK.

Beds and sheds a common theme
The strong trading activity witnessed in the residential and logistics property sectors over 2019 is reflected in PropertyEU’s annual ranking of top real estate law firms. The two asset classes are components in a total of 14 out of the top 25 transactions – that is 56% of instances.

Law firms PropertyEU has spoken with believe this megatrend will continue well into 2020. Evan Lazar, co-chairman of the global real estate group at Dentons, led a team of 50 lawyers on the acquisition by Singapore sovereign wealth firm GIC of the Maximus portfolio of 28 logistics parks across six countries and seven jurisdictions. Kirkland & Ellis was also legal adviser.

Lazar said: ‘Clients have been very focussed on sheds and beds. We have done a lot in the logistics area working with the likes of GIC, Gazeley and many others, and a lot in the beds area too, for example with Harrison Street all over Europe and Round Hill Capital, including its recently announced exit together with Blackstone of €1.3 bn of residential property in the Czech Republic.’

Wider societal changes
Steven Cowins, a London-based private equity real estate lawyer at Greenberg Traurig, sees a similar trend. ‘We’ve really seen real estate investors reflect wider changes in society such as the way people shop, which is requiring key operators to have prime logistics sites.’

Within logistics property, he said many real estate investment firms were pursuing a strategy of aggregating many smaller assets in readiness for large portfolio sales. Christian Schede, managing shareholder and chair of the German real estate sector group at Greenberg Traurig, explained the firm had acted on a number of major transactions, including the takeover of Dream Global REIT in the commercial space, and the large-scale residential acquisition by public sector housing company Gewobag.

German rent controls
Rent control regulation is a huge issue in German residential property, he highlighted. The ongoing regulatory move to curb rental increases has been impacting share prices of German residential property companies exposed to Berlin and has put off some foreign investment into the sector.

Nevertheless, Greenberg Traurig has been seeing significant activity, in particular for newly-constructed residential projects, which have been exempted from the Rent Price Brake regime applying in many of the larger German cities. ‘There is still very decent appetite from both domestic and international investors to invest in residential,’ he summed up.

Hot legal issues
Drilling into the legal aspects of sale and purchase agreements, it seems that warranty and indemnity insurance (WI) has become commonplace in large real estate sale purchase agreements. Denton’s Lazar said: ‘WI insurance is being used to get the buyer comfortable that there is substance behind the warranties and it greatly helps buyers limit risk from unknown surprise: at the same time WI insurance provides selling funds with the ability to fully distribute proceeds and liquidate the entities that sold the assets.’

Sellers have always wanted to be able to liquidate their entities as fast as possible after concluding a transaction, he explained. Before the warranty and indemnity insurance market took shape, negotiations on the warranties and related provisions could drag on for weeks.

Typically, an agreed warranty and indemnity would be for up to two years after a transaction concluded and for five years for issues such as taxes. That long time period meant sellers have had to keep their asset-owning entities liquid and on standby in case of any future litigation.

In turn, this led to administrative costs and the withholding of some sale proceeds from investors. But developments in warranty and indemnity insurance mean sellers can immediately wind up their holding entities, allowing for all cash proceeds to flow to investors. There is a cost, but the market has come to accept that fact, Lazar summed up.

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