‘Innovation’ is the word that best defined the US construction market in 2015. Long-term, multi-phase projects continue to drive the need for transactional advice across the country. Despite the drop in crude oil prices, the Gulf Coast energy market is standing strong, partly due to an increase in fracking activity. Taking the place of coal-fired power plants are wind farms and solar energy plants, generating business for firms with expertise in environmental law. Retrofitting and renovation projects are also on the rise, following the trend towards increased efficiency and sustainability.
The energy sector is undergoing a true revival, with numerous new initiatives such as liquefied natural gas facilities, clean technologies, electrical transmission reliability and renewable energy solutions. In addition, there is a growing market for sustainable building certification, with an increasing number of attorneys gaining proficiency in the Leadership in Energy and Environmental Design (LEED) accreditation procedure. Increased migration to cities has advanced a rise in commercial, residential and mixed-use investments, from New York to San Francisco.
Foreign investment in retail, hospitality and condominium projects also continues to grow. Large developments, such as the Hudson Yards project in New York, reflect the trend towards the reimagining of city landscapes, creating a stable source of revenue for engaged law firms. The healthcare sector generated a flow of work from major renovations to several university hospitals, and continues to generate work in dispute resolution. The quest for efficiency has increased the popularity of collaborative contracting and alternative project delivery methods, ranging from public-private partnerships (PPP) to design-build, and the need for procurement advice.
Market trends were further strengthened by Congress, which in December 2015 not only extended tax incentives for the renewable energy sector, but also granted a $305bn transportation package to support public infrastructure projects. Determined to cut costs, companies increasingly choose to invest in risk management at the early stages of a project to avoid future litigation. Litigation avoidance has also been driving an upswing in arbitration.
Land use and zoning activity is closely linked to the real estate transactional market, with cities such as New York, Chicago, Boston, Miami, Los Angeles and San Francisco extremely active. Seattle, Atlanta, Houston and Denver are also buoyant. The US market is home to a range of firms, from small boutiques, to several national specialist land use and zoning practices, to well-known full service heavyweights, and often expertise in this area goes hand-in-hand with a strong environmental law practice. Notable hires included Holland & Knight LLP welcoming Debbie Orshefsky and Douglas Praw from Greenberg Traurig, LLP and Goodwin Procter LLP respectively. The demise of McKenna Long & Aldridge also created some movement, with Michael Wallenstein and Thomas Winfield joining the Los Angeles office of Pillsbury Winthrop Shaw Pittman LLP and Timothy Tosta joining the San Francisco office of Arent Fox LLP.
The real estate industry enjoyed a busy year, with investment coming from a variety of sources, including foreign investors capitalizing on the comparative stability of US markets, institutional investors bulking up their real estate holdings and investment funds attracted by higher returns than those on offer in core acquisitions. The gateway cities in particular fared well, with San Francisco and New York reported as being exceptionally hot; in New York, China’s Anbang Insurance Group paid $1.95bn for the Waldorf Astoria, a record price for a US hotel, while RXR Realty sold roughly half of its stake in six buildings to Blackstone Group in a deal that valued the buildings at $4bn, more than twice what RXR originally paid for them. Beyond the gateway cities, foreign money found its way to states such as Illinois and Arizona, which had historically proved less attractive to investors.
Implicit in any boom is an anticipated downturn and many observers expect the forecasted rise in interest rates to curtail activity. The bearish approach taken by stock investors perceiving imminent decline in the market has already led to a number of public to private leveraged buyouts, with Blackstone Group - the largest private equity investor in property worldwide - stepping in to take control of Strategic Hotels & Resorts and BioMed Realty Trust.
The majority of legal practices enjoyed a high volume of development transactions across all commercial real estate product types, with standout sectors including hospitality and multifamily and senior living. This was partly enabled by the loosening by banks of lending standards and the increase in new issues of commercial mortgage-backed securities. The total amount of outstanding commercial and multifamily mortgage debt continues to grow at a strong pace, particularly on the multifamily side.
The real estate ranking takes in an assessment of firms’ scope and national capability across a range of areas, including development work (or ‘dirt’), finance for both lenders and borrowers, and securitization and real estate-related corporate transactions. Other relevant factors include bench strength and the profile and market power of key clients.
The REIT market continues to be very active, with lots of new trust formations, spin-offs and non-REIT companies converting into REITs, as well of course as real estate and capital markets transactions involving REITs. In December 2015, President Obama signed new federal tax legislation that includes significant changes to the taxation of spin-off transactions involving REITs. According to firms, the new legislation will not adversely affect the REIT market, but it is shifting the type of advice that the firms are giving. Clients want to know how the changes will impact their businesses, and lawyers must continue to be creative and look for ways to unlock the constraints the legislation will impose.