By James Fink, originally published in Buffalo Business First on May 27, 2020, 12:02 am EDT.

Work-out attorneys may be busier than real estate attorneys

Adam Walters Adam Walters, partner, Phillips Lytle, is a commercial real estate specialist. JOED VIERA

Seven years ago attorney Adam Walters and his wife, Melissa, climbed to the Kibo Summit on Mount Kilimanjaro, so it’s okay to say that he welcomes challenges, which sets him up well for these pandemic times.

And his advice in these historical times: Be cautious and err on the side of conservative wisdom.

“The longer we are in this situation, the deeper the impacts will be,” said Walters, a partner at Phillips Lytle LLP.

Walters believes as statewide restrictions are eased, it will be worth watching how the banks and financial institutions react.

“Loans will be one of the big questions coming out of this,” Walters said. “You can be sure that you will see banks tighten up on loans as everyone assumes a more conservative approach.”

Walters said projects that are close to completion in terms of financing may still get underwritten. However, that may not be the case for more speculative projects or ones in early development stages.

All of which begs the question about who will be busier in the coming months: Attorneys who focus on traditional real estate and development or those whose primary focus is bankruptcy or business work-out specialists.

“My guess is that going into the summer, the work-out attorneys may be busier than the real estate attorneys,” Walters said.

His assessment is shared by others in the legal profession.

“I could see a surge in Chapter 7 (bankruptcy) cases,” said veteran attorney Morris Horwitz, who has legal forte is both bankruptcy and trusts.

Garry Graber, a Hodgson Russ LLP partner agrees.

“The real estate world, as we know it, is in for some restructuring, particularly among hotels,” Graber said. “There will be some level of adjustments and some fall out.”

Some quick thoughts on the post-pandemic development landscape from Walters:

  • It helps that developers in the Buffalo Niagara region generally take a more conservative approach to starting projects. This area has few speculative commercial developments. That has held true since the late 1960s and has helped the region weather downward development cycles.

    “For the most part, (local) real estate developers are not over-exposed,” Walters said.

  • Walters said demand for new office space remains “a great unknown.”

    Some, like CBRE’s chief economist Spencer Levy, believe office tenants may seek a reduction in space as more people opt to work remotely. Co-working space also may be reduced.
    “My guess is there will less of a demand for office space, not more,” Walters said.

  • Developer Rocco Termini said more than 80 percent of his apartment tenants paid their April rents but what about the next few months?

    Many tenants applied and received federal Payroll Protection Program funds, which were then allocated for expenses such as rent.

    “Landlords are watching this closely to see what trends are emerging, or are not emerging,” Walters said. “Everyone is looking at their leases to see what their legal rights are. I’ve had a lot of conversations about that.”

  • Public-sector incentives, such as historic tax credits, brownfield tax credits and industrial development agency-backed breaks, will play a larger role.

    “Incentives could help bridge a lot of gaps,” Walters said. “The need for new projects is generally there.”