Commercial Real Estate Blog

There is an interesting article in Bloomberg about how the credit crunch and litigation slow down has affected law firms and their partners. Some of the side effects cited in the article include some law firms requiring partners to take out bank loans for any amount above the minimum amounts provided for in their partnership agreements.

According to Bloomberg research, deal flow is down 34% this year, resulting in an estimated 15% drop in the income partners at the top 100 firms can expect. Such dramatic slow down has caused many firms to delay hirings, fire associates, and in some cases terminate partners.

Most of the slow down has been felt in finance, private equity, and real estate practices. Some of the law firms cited shed nearly 10% of their staff. This is an area to keep an eye on since some of the strongest Silicon Valley markets (Menlo Park, Palo Alto) greatly benefit from the presence of law firms. That said though, several firms have recently bucked the trend by taking on additional space in the past two quarters.

A Bloomberg article today predicted a 15% drop in commercial real estate prices as a result of the increased costs of debt. The article cites the delayed Archstone-Smith transaction and the failed Mission West transaction as evidence that deals are beginning to fall apart. Of course this is true and a lot of money in the form of deposits has surely been lost as the markets saw a tightening of credit.

The article continues on to give an example of the repriced debt:

About six months ago, a 30-year commercial loan with 5 to 10 years of interest-only payments would have cost the borrower about 120 basis points more than the yield of the 10-year Treasury note. A similar loan would now cost about 160 to 200 basis points more than the 10-year Treasury’s yield of 4.6 percent, data compiled by New York-based Cushman & Wakefield Sonnenblick Goldman show.