The Mortgage Observer spoke to Kramer Levin partner Jay Neveloff this month. Mr. Neveloff, a 24-year veteran at the firm, told us what he’s hearing from his wide range of clients following November’s elections and what many of those clients are busiest doing with the end of the year fast approaching.
The Mortgage Observer: What is your area of focus and how long have you been at the firm?
Jay Neveloff: My focus is real estate transactional work—buying, selling, developing, borrowing, lending, condominium, leasing. Even though I’ve been at the firm for 24 years, I’m actually practicing with some of my partners for my entire career. It was just the transition of how the firm worked. I started at Marshall Bratter and then when Marshall Bratter dissolved in 1981, I went with the real estate group to Rosenman, which is now Katten Muchin.
And you’ve had the same focus since?
All deals. My whole career has been deals.
Who are some of the clients you represent?
I represent a number of private equity funds—from Fortress to Westbrook to DLJ. I’m doing something for Carlyle, and I’ve represented Donald Trump for over 30 years. I represent the Ponte family, which has been active. I represent Related, CapitalSource, Bruce Eichner. It’s an interesting variation of clients.
Do you like having a mix of clients?
I do. I love it. And my clients become my friends. Most of my very close friends are clients, which makes it nice.
Among your developer clients, what are you hearing about the recent election results?
Apart from moaning that they expect to pay more in taxes, aside from the fact that there is a tremendous sense of urgency to close deals that can be closed in this calendar year, life is going on. They are continuing to look at deals, look for equity, look for sites. I don’t believe that the election truly will have any long-term effect on New York real estate. I don’t quite know what the impact will be outside of New York, but my instinct is that if there’s a concern that the capital gains tax rate is increasing, most people who are investing or developing now aren’t going to sell a year later, in all likelihood. It may be two years, it may be three years, it may be five years, it may be eight years. So they’re complaining and they’re moaning, but there is still product. And I think that the people who are selling are still going to sell. The taxes are what the taxes are. We’re collaborating with the tax department on different structures, and we’ve always done that.
What are some the ways that you can structure deals differently to benefit clients?
In restructurings, as an example—and there are certainly some restructurings that are going through the process—one way is for new equity to come in and, instead of buying out the old borrower, the old equity, to leave those previous owners in the deal and not look for capital. That’s one way. Another way is clients looking at selling property and maybe not selling all of it. We have situations where we’re looking at creative condominium structures to allow the seller or the current owner to keep some of the property and sell another part of the property. And that reduces the amount of the sale. The deal structures have consistently become more complex.
What’s causing that?
There is a lot of money around that has a niche in the market to invest. The numbers have gotten bigger because the prices have gotten bigger, so people need more money to do it. And the lawyers and the bankers and the brokers learned how to do all this stuff. These are techniques that have been around corporate finance. I think corporate has led the way, and real estate finance is right behind it.
You mentioned that there are a lot of smart finance people and lawyers who are coming up with these highly complicated, structured deals. Any danger spots looming?
There is a danger spot. I think that when people buy real estate based on spreadsheets, they’re in a danger zone.
Based on spreadsheets in what way?
When you invest as a lender, as an equity investor as a developer in real estate, you fundamentally have to know and understand the real estate. It’s not just someone from Harvard Business School or Wharton doing spreadsheets and saying ‘I estimate that the rent is going to go up by X percent a year, and inflation is going to be this and the value of the dollar is going to do this versus that.’ That’s all important, but unless you fundamentally understand the real estate—its location, the demographics, the market—you expose yourself to risks that you shouldn’t.
Apart from taxes, what are your clients most worried about?
What comes up most often is a double-dip recession in Europe. People are also concerned about the fundamentals of the economy and unemployment. We still haven’t gone through the home mortgage debacle and that hasn’t gotten sorted out. And I think that my clients in particular would like to see all the residential mortgages get sorted out and for there to be more jobs—because if there are more jobs, there is more stability.
Sandy Lindenbaum passed away this summer. How is the firm recovering?
He’s one of the few lawyers who ever defined a sector of the legal market. I viewed him as a mentor and a friend. Sandy put together an amazing land-use team. It was expanded when Paul Selver and his team joined us several years ago. Nobody could ever replace Sandy, but we still without a doubt have the pre-eminent land-use group in the city. He’s irreplaceable, and it’s a big loss on so many levels.