Real Estate Advisor Law Blog : Ohio Real Estate Lawyer & Attorney : Ulmer & Berne Law Firm : Columbus, Cleveland OH

 Recently, Crain's Chicago Business  published an article about Vienna Beef's Hot Dog University.  Given the continued state of the commercial real estate industry many of our colleagues have had to "look" for new opportunities.  Hot Dog U struck me as just about the most entrepreneurial idea I have seen in a long time.  All of the skills a real estate professional has acquired are necessary to be successful in operating a hot dog stand:  drive, personality, street smarts and the ability to calculate cap rates on the fly, or at least make change for a $20 bill !  But the most important skill to make a success of a hot dog stand is LOCATION, LOCATION, LOCATION !!!  Watch the video below:

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Everyone is talking about Alternative Fee Arrangements (AFAs).  Some clients are demanding it; some firms market themselves as special because they will consider it; some attorneys are frankly scared of it because they think all it means is that they will be required to discount their fees.

In reality, an AFA is nothing more than a bill based on something other than the amount of time spent on a matter multiplied by the hourly rates of the attorneys doing the work.  Contingency fees are a prime example.  Fixed fees are another. There are obviously countless other "alternative" ways to structure a legal bill. Each may or may not be less than the traditional hourly rate fee. The reason for an AFA may be to reduce fees, but there may also be other reasons:

(1)        An AFA may provide certainty as in a fixed fee.  The ability to budget legal costs with certainty may be more important to a client than getting the lowest price.

(2)        An AFA may better align the interests of client and attorney.  AFAs with success fees or premiums for desired results may actually increase legal fees.  But the attorney is rewarded for obtaining the desired result in the most efficient manner.

(3)        An AFA may allow for the client to provide a larger volume of work. The larger volume should drive efficiencies which create a more profitable engagement for the law firm while providing an overall smaller legal budget for the client.

(4)        Where the assignments are repetitive or reusable, the law firm charging a fixed rate may lose on the first few engagements but then make it up in each subsequent assugnments.  Or, in a slight variation, a law firm can quote certain matters at a loss and others at a premium without having to account for hours where the client can afford more in some cases and less on others (e.g., more on a lease for a large space and less on a smaller lease even though the same amount of time and effort is required.)

(5)        The administrative costs involved with billing fixed fees, and with reviewing the bill from the client's perspective, are less than that with hourly billing. And this is actually a key benefit. A lawyer and client will never need to argue about an invoice - it is settled in advance and the issue about who spent how much time on what is eliminated. The only issue is did the attorney do a good job.

I think in some ways the AFA movement  may be akin to the shopping center landlords converting from charging tenants their pro rata share of CAM to now charging fixed CAM. When it first started, tenants were wary thinking it was a hidden profit center for the landlord and landlords were wary of taking the risk of loss. Eventually, landlords came to realize that it decreased conflict between landlord and tenant because they were no longer arguing what was CAM and how was it measured, and didn't need to worry about audits.  Similarly, tenants have come to see the benefit of budgeting exactly what their occupancy costs are without getting that extra reconciliation charge each year and not having to spend the time and aggravation negotiating CAM exclusions.

So the message is AFAs can be a great tool, and the effect on overall pricing is only one factor to consider.  They work well in many situations, not in all.  To be truly effective both the lawyer and the client need to feel fairly treated.  Like strategic business partners !

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Long before 'billable hour" accounting became the norm in law firms, lawyers would price projects based upon what was fair to both the client and the lawyer.  That is not to say that billings based on time is unfair, only that it can be unpredictable.  Billable hour accounting dictates accountability which is and will remain a reality for all law firms now and into the foreseeable future. However, trying times demand flexibility from both the client and the lawyer. Clients, both entrepreneurial and institutional, desire certainty from their vendors to permit accurate project budgeting. Lawyers and law firms understand that to be and remain relavent to their clients and potential clients they must remain or become a client's "business partner, " add value and be perceived by their clients as a "well worth the expense."

Litigation matters have been priced by lawyers using contingency and success fees for many years. Rarely, do we see transactional matters priced using such tools. However, alternative fee arrangements such as tiered fixed fees, capped fees and blended rate fees all based upon size and complexity of transactions are being offered by law firms more frequently.  Law firms desire to build and maintain client loyalty. An alternative fee arrangement can be one tool in the law firm tool box to generate client loyalty and deliver legal services in a cost efficient manner; but, alternative fee arrangements are not appropriate for every client and every situation.

Successful alternative fee arrangements: (i) dictate that the client and the lawyer share intimate information about the proposed assignment, goals of each and their cost structures; (ii) should represent the client's valuation of the matter compared to the reasonable fee to the lawyer structured to take advantage of the law firm's resources and efficiencies; and (iii) should not be static arrangements.  In other words, be structured to change as the assignments and relationship changes.  

Look for the business partner who is the "value proposition" which will enable the achievement of the goals of the business plan and with a "long term" perspective on relationships.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Our good friend, Abe Schear, Chairman of the Leasing Practice Group at Arnall Golden Gregory in Atlanta, pens a newsletter called Baseball Digest(able).    Abe's January issue is a powerful piece of insightful writing which merits all of our attention.   Since many of the deals in the real estate industry occur as a result of the reputation and faith we all have in each other based upon mutual experience, we are all put in the position of being an "enabler" at some time or another.  Therefor, it is in all of our best interest to head the lessons which Abe so aptly points out.   Abe has graciously given us permission to reprint the newsletter below.   Thank you Abe.

New Year’s Musings

Having just returned from Berlin where Linda and I spent four nights over the year end holidays, numerous reflections come to mind.  First, and somewhat surprising to me, there is so much to see I’d like to go back in the summer when the weather is more temperate and there is more than eight hours of day light.  Second, what is it about us Americans that wholly rejects timely and clean bus and train service?  The public transportation in Berlin was beyond wonderful – clean, efficient, affordable and it went most everywhere we wanted to go.  Third, most of Berlin appears to have come to grips with its history, good and bad, and the city is full of contemplative art and youthful energy. 

There is, in fact, a sculpture in a small park near the original site of an old synagogue where Jewish men were separated from their mostly non-Jewish wives and children near the end of World War II.  Their wives and their families protested night after night, blocking streets and creating a stir the Nazis neither expected nor wished to see gather wider support.  While these courageous women were not successful in completely stemming the tragic transport of these men and others to the concentration camps, their voices were heard, and the transport was slowed.  The part of the sculpture which comes to mind sits directly across the park from the memorial to these heroic women.  It depicts a man sitting idly on a park bench looking away from the other pieces, a man who wants to appear to know nothing, will do nothing, feels nothing, and cares for nothing and no one but  himself.  Our guide referred to him as the “ambivalent stranger”.
           
This “know nothing – do nothing” concern affects all of us around the world.  As we look at the tabloid-friendly Tiger Woods situation (or the never-ending baseball steroid matter for that regard), regardless of what Tiger did, what Tiger took, where Tiger took it and who he got it from, does anyone seriously believe that there was not a bevy of enablers, people as self serving and cold as the statue, who knew better but said nothing and did less?

For instance, is it remotely possible that Tiger’s caddy, his agent, his so called friends and representatives of his sponsors, did not know what was going on which led to this very sad fall from grace?  Under what pretense did they think that they were being Tiger’s friend?  Were these people simply protecting their own meal ticket?  Is there no circumstance when doing right is more important than making money?

Business, naturally enough, raises this quandary every day in the ethics and morals of our work. What is right and what is not?  When do we lend a hand and when do we turn our backs?  When do we take a moment to comfort and when do we fail to be a friend?

These issues are particularly important as we enter a new year.  Sport is, of course, a daily lesson about rules and teamwork and fair play.  Sport is a reflection on our society and on us – we follow sports that we care about and, as we do, we often learn a lot about ourselves.  As we set our goals for the new year, we routinely look at our productivity – hours worked, time billed, money earned – or whatever our productivity measures may be. We set goals to be better parents and better children, to go to our houses of worship more often, to do more volunteer work.  Perhaps we should ask ourselves what we would have done had we been in Tiger’s inner circle.  Would we have had the courage to try to correct the situation?  Would we have lied about not knowing anything?  Would we have done all we could to save our paycheck?

I have some idea how I would have reacted had I been in that inner circle, but there is no doubt that many of these people wish or will wish that they had taken the nobler path and will ask themselves why they didn’t act when there was opportunity.  I know that none of us want to be memorialized as a “know nothing, do nothing” person – not for ourselves nor for our families.   

• Email This
• Print
• Comments
• Trackbacks
• Share Link