Day in Court: Litigation Returns in Tough Economy

When things go wrong in commercial real estate transactions, litigation follows. This is especially prevalent during difficult times. Accordingly, as with the real estate recession of the early ’90s, the recent unprecedented downturn in the real estate economy and in market fundamentals has already spurred a substantial increase in the demand for litigation consulting and expert witness services, based on what I have seen in my own practice.In addition to the bankruptcies brought on by pressures on income property cash flows and the increasing risk of maturity defaults, disputes will erupt between lenders and borrowers, as well as between partners, such as developers, investors, institutional-venture partners and sponsors and equity providers. A dispute between partners can resemble a divorce, whereby personal feelings and bruised egos cloud the business issues. Qualified litigation consultants, combining legal experience and a grounding in the real estate industry, can help mediate a resolution, advise on legal strategy and even serve as an expert witness.Litigators are generalists, seldom experts in commercial real estate, its economics or its financial structures. A litigation consultant, usually an experienced business professional retained to maintain attorney work-product privilege, advises an attorney on the business angle of a dispute, helping the attorney shape a resolution or identifying issues for potential litigation. Thus a good litigation consultant possesses a thorough understanding of the business issues and a layperson’s understanding of the legal issues underlying the dispute and of the litigation process. A consultant brought in early in the dispute can provide significantly more help and guidance than if retained once litigation has commenced. Once litigation becomes inevitable, a consultant can help shape the tone of the pleadings and the direction of the litigation. The role may evolve into that of an expert witness. Once designated, an expert’s additional work is no longer protected by attorney work-product privilege and usually becomes discoverable by the opposition. The expert will often review opposing experts’ reports and testimony, witness depositions and transactional documents. The expert will likely be required to testify at a deposition taken by opposing counsel and be available to testify at hearings and trial. The expert may also help the litigator develop cross-examination strategy and aid counsel during the deposition of opposing experts.At trial, the expert’s role evolves once again to teacher of the jury, explaining complicated issues about the case, basic finance and real estate concepts and industry principles and practices.Thus, a good expert witness must possess a strong understanding of the particulars of the underlying transaction, excellent communication skills and extensive experience testifying in court and withstanding cross-examination.Gary M. Tenzer is co-founder, principal & senior director of Los Angeles-based real estate investment banking firm George Smith Partners Inc. and has extensive experience as a litigation consultant and expert witness.