Originally Published in The Real Deal
Written by Adam Pincus
When the $1.1 billion sale of the Sony Building at 550 Madison Avenue closed last year, a slew of lawyers from a handful of firms were scattered around Manhattan in their offices listening in on speakerphone.
Like most pressure-cooker Manhattan real estate transactions, hundred of millions of dollars needed to be approved and wired in a highly orchestrated electronic dance in order to ensure that the Sony Building changed hands smoothly.
Not surprisingly, many of the attorneys who were involved in that high-profile deal are among the most elite real estate minds in the city.
But those legal services don’t come cheap.
Real estate lawyers at the top of the game in New York charge $1,000 to $1,250 an hour, sources told The Real Deal. That is far higher than the $200 to $600 that the bulk of partners and associates bill per hour within the broader New York City real estate industry, insiders said.
Members of this elite group of high-paid lawyers are generally loath to discuss their rates. Yet sources said they can charge amounts this high because they are usually so intimately familiar with the ins-and-outs of complex real estate transactions, and so well-connected, that they can sometimes do something seemingly small that saves a client millions of dollars. For example, one key phone call to an opposing lawyer on a deal, or one crucial piece of legal strategy, might be the lubricant to grease a sale or prevent the firm from spending hours of billing time researching a moot point.
Stuart Saft, a partner at Holland & Knight who specializes in putting together condominium plans for top developers, said he recently developed a strategy for a client that did just that.
“What the client wanted was extra-complicated and would require a lot of actions to occur at the same time,” said Saft, who declined to discuss specifics. He drafted a plan over a weekend designed to persuade the other side to accept the terms and move the deal forward. A less-experienced attorney, he noted, might have taken far longer.
“You are paying a little bit more, but there is value added that comes with the higher price,” he said.
Still, not every client who uses New York’s highest-paid attorneys does so on every case. A New York City development firm might only tap a top firm for a particularly complex deal, while opting for a cheaper law firm on its more meat-and-potatoes transactions.
But when hundreds of millions — or billions — of dollars are on the line, the pricey lawyers are generally the go-to advisors.
TRD was able to identify several making around $1,000 or more per hour. They include high-profile lawyers such as Fried, Frank, Harris, Shriver & Jacobson’s Jonathan Mechanic at $1,110; Kramer Levin’s Jay Neveloff at about $1,075; Greenberg Traurig’s Robert Ivanhoe at $1,010; and Weil Gotshal & Manges’ Phil Rosen at about $1,000.
But the circle also includes big-time real estate lawyers who tend to get less press coverage, like Allen & Overy’s Kevin O’Shea; Cleary Gottlieb Steen & Hamilton’s Steven Horowitz; Debevoise & Plimpton’s Peter Irwin; Fried Frank’s Stephen Lefkowitz and Skadden, Arps, Slate, Meagher & Flom’s Harvey Uris. Other firms with attorneys billing above $1,000 per hour include Simpson Thacher & Bartlett; Schulte Roth & Zabel; Gibson Dunn & Crutcher; and Paul, Weiss, Rifkind, Wharton & Garrison, sources said.
This month, TRD delved into the world of elite (and high-paid) lawyers, talking to sources at more than two dozen of the city’s white-shoe firms, as well as to developers and investment-firm sources who use them. We not only inquired about which real estate lawyers charge top rates, but also about when it’s worth shelling out the money to hire them.
In some cases, the lawyer on one side of a transaction is getting paid upwards of $1,000 an hour, while the lawyer on the other side of the deal is charging about half that.
For the lower-fee lawyers, it can be a point of pride to both sit across the table from a big-named attorney and to provide services at a far lower rate.
Nicholas Donovan, the named partner at Donovan LLP, represented the REIT American Realty Capital in its purchase of a 48.9 percent stake in Worldwide Plaza (although he declined to comment on the transaction) in October 2013 for $220 million. He also represented investor Maurice Mann’s group in its purchase of the Apthorp at 2211 Broadway for $426 million in 2007.
His billing rate is $550 per hour, but he regularly deals with other attorneys on similar deals from white-shoe firms that are likely billing up to double that rate.
“At the highest level, practicing law is like anything else. Like in baseball, a guy is worth $20 million a year, and another guy plays the same position and makes $1 million,” Donovan said. “Is one better than the other? Not always.”
He also noted that while $1,200 an hour for a lawyer might sound like a lot, in some cases the principals or investment bankers on the deals they’re working on are making millions of dollars on the transaction, while the lawyers are just earning their hourly rate.
“The lawyers may be the lowest-paid person in the room,” he quipped.
Those principals turn to the city’s priciest attorneys for a variety of reasons.
For players who are not based in New York, these lawyers and firms often provide a brand name and level of comfort. Local players, on the other hand, might hire these firms when they have a particularly hairy deal, where they need an attorney with a unique real estate sub-specialty.
The Sony deal, which closed in March 2013, was one of those deals. For starters, it was the largest loan that the REIT SL Green Realty had ever arranged. In addition, SL Green was not only originating the $950 million loan, but it was also selling most of it off to buyers, including the Bank of China, which snapped up the largest piece. SL Green tapped Allen & Overy’s O’Shea to handle that transaction.
Areas of expertise
Saft cited land-use as an example of a real estate specialty that only certain lawyers are truly qualified in.
“You have a limited number of people who have been educated to do zoning work, and who have the requisite contacts in the land-use community to be successful,” said Saft, who told TRD in statement that he bills under $900 an hour. “You can’t just say you want to be a zoning lawyer.”
However, a good zoning lawyer can identify an obscure zoning rule that may save a client millions of dollars in preparing a variance application. On the flip side, a mistake or a lack of knowledge can have the opposite impact.
Yet sources at one real estate family firm said they could manage typical transactions in-house or with a mid-market attorney.
For a client who knows the industry well, or for a simple, vanilla transaction, the mid-priced firms get the job done just as well, sources said. In addition, there are specialties within the real estate business where attorneys rarely charge stratospheric rates.
Adam Leitman Bailey, whose billing rate is $625 per hour, said that when it comes to landlord and tenant work, his firm can only bill about $425 per hour.
“I have to follow the market,” he said.
The discount dance
Legal insiders noted, however, that just because an attorney’s standard hourly rate is $1,000-plus doesn’t mean that’s always what clients pay.
In many cases, New York City’s top real estate attorneys, like all attorneys, will tweak that price, although several partners told TRD they sought to avoid it.
“A lawyer’s experience and working well with the client up front can lead to better efficiency so that the ‘hourly rate’ is not the only factor, by any means, in the ultimate legal fee,” said Ivanhoe.
Nonetheless, attorneys who spoke to TRD differed on whether, and how, attorneys discounted their rates.
“I don’t think top lawyers discount their rates,” said one top-billing source. “I don’t discount my rate. But I don’t necessarily bill a lot of hours [either].”
Another lawyer said partners shoot to have a high “realization” rate, which measures the percent of billed dollars that was actually paid by the client. The average is in the 80 to 90 percent range, but many lawyers shoot for the mid-90s, the source said.
In other instances, lawyers cap fees, or negotiate a flat rate, or even simply discount the final total if the fee got out of hand.
“Some clients negotiate to get a discounted rate, although that is not something we love to do,” Donovan said.
For example, large public companies have a policy that requires some level of discount, he said.
In an email to TRD, Ivanhoe said his “standard” hourly rate is $1,010, but noted that the rate “represents a range because … real-life transaction pricing involves much more than an hourly rate.”
He explained that the firm “routinely works with clients to provide a pricing solution” based on a client’s timing and budget.
He cited the $191 million February purchase of a multi-state real estate portfolio that Greenberg Traurig worked on for Starwood Capital. That deal came on the heels of a Starwood deal, “a complex, 26-state, 65-property bidding process” in which 60 Greenberg Traurig employees participated.
“What we were able to achieve in the time frame allotted would normally otherwise require multiple law firms at a significantly higher cost, which would have ultimately reduced the value of the transaction for the client, and would have required far greater coordination on their part,” Ivanhoe noted.
Despite the fact that lawyers give out billing rates to potential clients on a daily basis, they hold them close to the vest otherwise. Also, there is no central database that tracks them, even among legal trade publications.
Other than Ivanhoe, all of the attorneys whose rates TRD cited either declined to discuss their rates or did not return calls for comment.
Some in the industry were surprised that Mechanic, who is often cited as the industry’s premier attorney, didn’t charge even more.
“Jon is kind of a humble guy,” said one attorney who has worked with him. “He is the kind of guy who adamantly does not want to have the highest rate.”
While lawyers’ rates are tightly held, there are some other windows into firm’s pricing — in particular bankruptcy filings.
For example, in 2008, as part of the Lehman Brothers’ bankruptcy proceedings, Weil Gotshal reported its top-billing rate was $950 per hour. A source at the firm said that rate is now “about $1,000.”
Other sources, including the legal website Above the Law, reported earlier this year that nine of the top 10 firms in New York City charged rates of between $1,120 and $1,250 per hour for all legal specialties. The site reported one firm, Gibson Dunn, with a top rate of $1,800 per hour, in a league of its own.
But there is a ceiling, even at the top.
“Because the higher you go, the more narrow the number of clients,” Saft said.