Thursday, February 3, 2005, Vol. 119, No. 23

Real Estate Market Drives Law Practice

Commercial Pickup Drives More Legal Business

LANCE ALLAN

The Daily News

The local real estate industry has been booming for the last two years as low mortgage interest rates have led many area residents to purchase homes and many others to refinance loans. And after a few years of sluggish growth, the commercial real estate market is beginning to pick up.

More deals. As a result, Memphis area real estate attorneys are experiencing a boom of their own.

Its been great for our practice, said Allison Gilbert, a real estate attorney with Harris Shelton Hanover Walsh PLLC, referring to the firms steady amount of retail developer representation. Weve seen a lot more 1031 exchanges, which are tax-free exchanges, and a lot more complex-type deals.

The pickup in commercial real estate work is a fairly recent occurrence, Gilbert said.

On the retail side with shopping centers and commercial loans, it slowed down a good bit, whereas the residential side had picked up a lot, Gilbert said. The commercial side slipped off a little bit, but is really starting to come back now.

Facing competition. For attorneys involved in the residential real estate market, the volume of work has not greatly increased throughout the recent sales boom, despite a significant increase in the number of loans originated and refinanced.

I think the last couple of years have been OK, said Joe Kirkland, a partner with Kirkland, Rothman-Branning & Associates PLLC. I dont think theyve been outstanding, and I dont think it has been a boom.

More closing companies have emerged to give attorneys increasing competition in the marketplace.

In our industry, we are competing with non-lawyers more and more, so while the last couple of years have been OK, from our perspective, were not showing significant growth, Kirkland said. The competition is more difficult because were not competing with folks that have to compete with us on the same level.

Not a niche market. When the local residential market went through a slow period a few years ago, real estate practice slowed, but was not devastated. Thats because most real estate attorneys dont focus on a specific submarket of commercial real estate. Kirkland, Rothman-Branning & Associates, for example, while it primarily focuses on residential real estate, also handles some commercial transactions.

Compared to other cities, lawyers arent quite as niched, Gilbert said. Real estate lawyers in Memphis, we dont just focus on industrial or focus on retail shopping centers. We do the gamut just because it is a smaller town, compared to an Atlanta.

Making an impact. It helps that the local economy is diversified.

Frankly, the Memphis market stays rather stable, said Neil Harkavy, real estate industry group leader for Armstrong Allen PLLC. It doesnt go through many peaks and valleys like you might have in the major markets.

However, there are some things locally that are detrimentally affecting the commercial market.

Those factors include tax increases that have some property owners looking at leaving Shelby County.

The cost of owning and developing property here locally, based on the taxes and the state franchise and excise tax that is imposed on entities that own property here, its driving local developers away from this market, Harkavy said.

Ups and downs. Gilbert is fairly new to the ups and downs of the local real estate market. But she has been around long enough to see a few peaks and valleys.

I started in the late 90s when the market was just going crazy, and then it slowed down for a few years, she said. We were on the very top end of a cycle. Then with everything with the economy, it affected what we do pretty strongly. It was pretty slow for a few years. Last year was a good year, but before then, it was slow for a few years.

Gilbert is preparing for a new series of peaks.

Its coming back up, she said. Theres much more of a willingness for developers to go out there. People are getting back into the market.

2005 outlook. The first few weeks of 2005 have been slow, but that doesnt necessarily mean this will be a bad year for those practicing in real estate.

The beginning of the year for most real estate lawyers is always slow, just because everybody winds everything up at the end of the year, Gilbert said. The 2005 outlook is as good, or hopefully better, than 2004 in commercial real estate.

The residential side of the market could be questionable, however. Interest rates, while still extremely low, have been inching up. And as for refinancing business, most homeowners took care of that within the past two years.

But even without the refinances, overall activity is still keeping everyone busy.

During the refinance boom, we were doing huge volumes of refinances but sales seemed to drop off, Kirkland said. Now, were not doing near the refinances but sales may have picked up a little bit. I dont want to say it equals out, but theres always something going on in the market.

More to develop. It has its up and downs, but overall, Memphis is a good place to have a real estate practice, Gilbert said.

I think originally Memphis was viewed as a small town by others when it really was growing, she said. I think now weve come into our own as a town in the regional aspect and maybe the national aspect. Memphis is a good town, I think, to be a real estate lawyer because its definitely not overdeveloped. Theres still a lot of development going on.