REITs, the Right Way

It happened on an April Fools’ Day, but it was definitely no joke.

On April 1, 2016, Vinson & Elkins officially established a dedicated Real Estate Investment Trust team when five partners with extensive REIT experience joined V&E from another firm. The new group collaborated with other V&E attorneys to take their REIT engagements to a new level.

Below, partners Daniel LeBey and Greg Cope give an inside look at the REIT landscape and how the firm has combined the work of the REIT team with that of other leading practice areas to provide optimal results for clients.

Why was it important to V&E to establish a dedicated REIT team?

LeBey: Having a dedicated team of lawyers who spend most of their time practicing in the REIT sector allows the firm to provide real value-add to clients because they bring not only technical knowledge but also industry knowledge to the table. We know the trends in the industry, we have seen virtually every issue before, and we know who the key players are. Having an industry focus is something that we think gives us a real competitive advantage relative to law firms that don’t have that.

Cope: There are specialized issues that come up with the REIT structure. It’s different than a public company that is a “C” corporation. There are specialized tax issues, structural issues, compensation issues, disclosure issues and other issues that impact a variety of different transactions. When you work on REIT deals for an extended period of time, you develop a broad and deep range of specific industry experience.

V&E is known for its work with energy industry clients. How does that work translate into the REIT space?

LeBey: There’s real overlap between energy and real estate, so the firm wants to have top-tier practices in both areas. V&E has a dominant position in the energy sector, and MLPs  have historically been a big part of that. In order to be dominant in that space, the firm has to have, in addition to first-rate capital markets lawyers, first-rate tax lawyers.

There are a lot of parallels between the energy/MLP space and the REIT space. Energy MLPs and REITs both do capital markets, M&A, and other corporate transactions.  Also, because both REITs and MLPs have a special tax status under which they don’t pay entity-level tax, both operate in an environment where unique tax rules must always be considered. It made a lot of sense for the firm to look at REITs because of the firm’s incredibly strong tax practice and experience working in industries that are tax intensive on the capital market side.

Cope: One other point on the complementary nature of the practice: Some of the assets that could be held in a REIT structure also can be held in the MLP structure and vice versa. Having a strong, nationally recognized REIT practice in addition to a top tier MLP practice provides V&E with a greater ability to handle those types of transactions and to provide a more comprehensive analysis of the best structure to use. It provides a competitive advantage when you’re talking to those clients who have assets that fit in both structures.

What was a case where the REIT team really shined?

LeBey: When we first came over to the firm, we had a number of significant matters that came with us. Probably the most notable one was the NorthStar Colony merger. That was a $16 billion three-party public company M&A deal completed in January of 2017. It was one of the largest REIT M&A deals in the industry in some time.

Our ability to serve as lead counsel for one of the parties in that transaction was bolstered by the M&A practice at V&E. The firm has first-rate public company M&A lawyers, and while we in our group do plenty of M&A work, when we get into a large, complicated public company M&A deal, it’s important that we have colleagues who are focused entirely on M&A transactions.  We couldn’t have performed as well as we did on that transaction without the support of V&E’s M&A attorneys.

Collaboration between practice areas is clearly valued at V&E. Besides M&A and tax attorneys, with whom else do you work closely?

LeBey: With our capital markets work, we take advantage of the fact that we have a very deep and broad bench of lawyers at the firm who have run into virtually every capital markets and securities law issue that one can encounter when doing a capital markets deal. I think that really sets us apart from some of the other firms.  In terms of total volume of capital markets work across all industries, V&E typically ranks at or near the very top nationally, including in IPOs and high yield.  We didn’t have that firm resumé before joining V&E.

The firm has a strong activism defense practice, too. An activist showed up relatively late in the NorthStar merger process, and V&E’s activism defense lawyers handled it very well. They deftly negotiated minor modifications that allowed the deal to move forward.

Cope: We also serve as underwriters’ counsel for a company called Healthcare Trust of America. In a deal this past year, they were raising capital to acquire a portfolio of 78 properties, which required that we conduct an extensive amount of due diligence on an extremely compressed time frame with our securities, real estate and environmental attorneys, who made sure that the disclosure included in the document was accurate and that there were no material issues with the properties being acquired. Working with our real estate and environmental attorneys together with our REIT team’s long-time dedication to this space is what made the deal possible within the time frame required.

We also work extensively with our executive compensation, antitrust and litigation teams on a variety of matters.

Due to economic factors, REIT equity capital market activity has been slower. Yet V&E’s REIT team remains busy. What’s the nature of your work these days?

Cope: In general, we’ve worked on different types of transactions while the IPO markets have not been as robust as they have in the past. For instance, as an alternative to IPOs, some clients are exploring direct listings. A direct listing is when a company lists its common stock on an exchange without raising additional capital. Right now, we are representing a financial advisor in connection with a company that just announced it’s planning to do a direct listing on NASDAQ.

We also have been working closely with our shareholder activism team in several situations, both for existing clients and new clients who have hired us to take advantage of our nationally recognized REIT and shareholder activism practices. 

LeBey: Our existing public company clients have SEC compliance and reporting and corporate governance matters that we handle regardless of whether they’re raising capital. And then we’ve also had M&A activity that’s kept us busy, with the biggest one recently being Two Harbors Investment Corp.’s acquisition of CYS Investments, Inc, where we acted as counsel for CYS.

We’ve also started to do a lot more private deals, private REIT formation transactions and private equity-style financings. That’s a trend that’s not going to go away. Generally, there’s so much capital in the private equity space that is now focused on real estate strategies that the sponsors tend to drive a lot of the activity in the REIT space.

It’s been an eventful couple of years for your core team of partners and you’ve also added associates along the way. Have you had any growing pains?

LeBey: I would say the REIT industry has had its own pains in the last year in terms of capital markets activity because the sector has been under some pressure in the rising interest rate environment, but I wouldn’t say we’ve had growing pains at all.  We’ve remained busy with our existing public company clients while adding several new private clients looking towards future IPOs when the window opens, as well as securing new underwriter counsel engagements.  And we’ve added a terrific group of associates across the offices where we practice – really some of the best associates I have ever worked with.  We also hope to add some lateral partners, especially in places like New York and D.C. where we have a lot of business.  As we’ve settled in with our team, it’s been seamless.