On Wednesday in Commercial Real Estate Abyss I noted collapsing deals, soaring vacancies and dropping rents in the commercial sector. It turns out that landlords aren’t the only ones suffering from the start of the commercial real estate demise.
Heaven forbid, there is now evidence that lawyers are starting to be affected the commercial real estate slowdown. LAW.COM is reporting Real Estate Deals Are Feeling the Credit Pinch.
The documents were signed on the more than $100 million deal for a large East Coast office building complex. The courier was hurrying them to the escrow agent. And then the lender got cold feet.
“They called the courier and made him turn around and return the documents,” said Stephen Cowan, the DLA Piper real estate partner who was advising the buyer on the deal last month. “That was a sobering thing,” said the San Francisco real estate law veteran.
The article goes on to mention that clients are demanding discounts from 5 percent to 15 percent if a deal doesn’t go through.
Cold Feet Over First Data
In other news I see Disagreements delay First Data loan sale to next week.
Private equity firm Kohlberg Kravis Roberts & Co. may delay the sale of loans financing its buyout of First Data Corp.(FDC) until next week after the firm and its bankers failed to reach agreement Wednesday on key terms.
A key component of the financing is a $14 billion term loan, a record for the market. Markets are closely following the fate of the loan package, as it is seen as a litmus test of investors’ willingness to absorb about $230 billion in loans flowing out of the first half’s buyout boom.
The delay seems to be smart as there is no funding now. And as Prof. Depew pointed out in point #3 of Thursday’s Five Things “KKR and Credit Suisse both know the Fed will take some action at their meeting to lower rates, and both are counting on that Fed action to increase market confidence.“
But imagine the “shocking travesty of justice” if everyone started asking for discounts on legal services because of delayed deals, canceled deals, falling stock prices, and other hardships, etc. Heck, almost everyone could qualify, and that well deserving group of underpaid and overworked attorneys would unjustly suffer.
How Many Lawyers Are there?
If lawyers started giving hardship discounts, inquiring minds just might be asking “How many lawyers would be affected?” It’s s good question too, so let’s take a look. The U.S. State department keeps track of the number of lawyers (I have no idea why but they do) and the answer can be found in a publication called Outline of the U.S. Legal System.
“The number of lawyers in the United States has increased steadily over the past half century and is currently estimated at more than 950,000.“
The document also provides a history of the legal profession from 1776 all the way up to 2004. Obviously, writing such publications is a critical function of the state department or why else would they do it? (Sarcasm aside, Ron Paul would put a stop to this kind of nonsense).
But 950,000 was the estimate from 2004. Surely there must be over 1,000,000 lawyers by now. And 1,000,000 is the number pegged in the article Are There Too Many Lawyers? Here are some additional tidbits of information from that article (not verified but presented as listed).
- The U.S. has seventy percent of the world’s lawyers but only five percent of the world’s population.
- U.S. industry spends hundreds of billion dollars annually on litigation costs and efforts to avoid liability.
- We have thirty times more lawsuits than Japan, one of America’s primary trade competitors.
- Product innovation in America has been drastically curtailed due to overwhelming liability concerns.
- The health care industry, one of the trial lawyers favorite targets, have costs that are spiraling out of sight, leaving many Americans underinsured or uninsured.
- The costs of virtually every good and service has an increased cost, reflecting the cost of rampant litigation in this country.
- In spite of the immense wealth being efficiently siphoned from the wallets of each and every American into the bloated bankrolls of avaricious lawyers nationwide, the legal industry is awash in business.
Darn! That revelation came out just as I had my handkerchief out in preparation for a good cry over the sad plight of U.S. Lawyers suffering the unjustified indignity of having to drop legal fees 5-15% over collapsed deals and other hardships.
I guess the legal profession will simply have to make it up for reduced fees by increasing volume as well as taking on riskier lawsuits. And it seems they have started already. In Reaping What You Sow (Part 2) I commented on a class action lawsuit by Countrywide employees against their employer. The odds of payout on this lawsuit seem very small, but why not “roll the dice”? After all, if the plaintiffs win, the legal fees are likely to be enormous. Let’s call this what it is: Lawyer Lotto.
We can look forward to continued litigation in all of these areas:
- Buyers suing developers for non-performance
- Developers suing speculators for flipping properties in violation of contracts
- Subcontractors suing developers for non-payment
- Subcontractors suing general contractors for non-payment
- Class action lawsuits against single family homebuilders and condo developers for faulty roofing, HVAC, electrical, and plumbing systems
- Lawsuits against inspectors for not catching code violations
- Condo boards and individual homeowners suing developers for shoddy work
- Lawsuits against appraisers for inflated values
- Lawsuits against banks when project fundings are halted
- Lawsuits over completed condo units being substantially different in size, interior finishing, and quality than how they were represented pre-construction
- Lawsuits by anyone and everyone against anyone and everyone over various fraud allegations
- Of course we can’t forget countersuits by anyone and everyone against anyone and everyone over anything and everything
So if you had your handkerchief ready for a good hard cry over the plight of lawyers, you can now dry your tears just as I did. It looks like the legal industry does not have too much to worry about.
Mike Shedlock / Mish/