In the liquidity and deleveraging crisis we are facing today, economic distress will inexorably lead to more disputes, often resulting in litigation. Whether it takes the form of a bankruptcy, a lawsuit between partners or between a borrower and lender, real estate litigation is quickly becoming the new real estate reality.
Most attorneys hired to try a case are generalists knowledgeable about issues regarding the law and trial procedure. Typically they are not experts on the technical aspects of commercial real estate such as financing, valuation and other issues that underlie real estate disputes. The attorney's understanding of the nuances of these issues, and how they can be used for strategic advantage, can strongly affect the outcome of the case.
A litigator trying a case centered on the financial structure of a complex real estate transaction must assemble the right team of real estate finance experts. There are three critical issues to consider when hiring a litigation consultant to analyze and prepare the case and to serve as a potential expert witness at trial.
Build the team early: At the outset of a case, an attorney will usually gain an overview of the issues from his client. However, clients are often emotionally vested in their point of view and are typically not objective or versed in all issues underlying the matter. The attorney should gain an objective analysis of the facts by building a team of experienced consultants in related fields to help evaluate the technical and business issues underlying the dispute.
A skillful litigation consultant can have a major impact on the outcome of a case by objectively analyzing the relative strengths and weaknesses of the issues to be litigated, which may not be well understood by the attorney, or even the principals. It is important to recruit consultants to the team early in the litigation process, perhaps even before the lawsuit is filed, because their insights may be critical to the formation of the case strategy.
In a recent dispute over the distribution of profits between an office building developer and institutional equity investor, the developer's attorney retained a litigation consultant, an expert in real estate finance, to conduct an analysis of the issues before the suit was filed. The consultant found key discrepancies between the developer and investor's interpretations of the documentation and the methodology used to calculate the allocation of profits.
As a real estate expert, the consultant was able to put the dispute in the context of industry norms. Because the consultant was engaged before the lawsuit was filed, his insights radically changed the attorney's litigation strategy, helping to turn the case in the developer's favor.
Choose the consultant carefully: In forming an opinion, the litigation consultant may review documents and other evidence, read testimony of witnesses or perform financial analysis. While professional credentials and expertise in a given subject area are important, it is paramount that the consultant have experience working with litigators and that he understand the litigation process.
The attorney must not only evaluate a consultant's expertise in his field, but also determine his potential as an expert witness. Ideally, the attorney should interview the prospective consultant in person to evaluate how a judge and jury would perceive the consultant on the stand. An effective expert witness must possess strong presentation and communication skills, display confidence, and be able to respond quickly and confidently to tough cross-examination at trial.
Some jurors may discount the opinion of an expert witness, assuming he is only a “hired gun” who will say anything he is paid to say. But if the expert has excellent credentials and communicates his conclusions clearly, credibly and objectively, he can quell many of the doubts.
Search for court experience: At trial the expert witness becomes a teacher who explains complex technical and business issues to the judge and jury. The ability to explain matters in layman's terms is critical. A credible expert witness who is articulate and remains unflappable during cross-examination will have much more influence on the judge and jury than one who does not.
The widening downturn in the real estate industry will undoubtedly lead to more legal disputes. Whether representing the plaintiff or defendant in a case, the litigator must assemble the right team of consultants and expert witnesses early on in the case to bolster the chances of a successful outcome.
Gary M. Tenzer is co-founder and principal of Los Angeles-based real estate investment banking firm George Smith Partners. He has served as a litigation consultant and testified as an expert witness. His e-mail is [email protected].