EUROPE NEWS: Mr Fund Structure

The world of law firms may not be scintillating, but one event a few weeks ago did make some waves. David Ryland – the top-ranked real estate partner at a British law firm, according to industry bible Chambers – decided to move to US firm Paul Hastings from SJ Berwin, where he has worked for the past 25 years. Not only that, but a team comprising Mark Rajbenbach, Michael James and Denize Akbulut followed him, along with many clients.

In fact, big changes already were taking place at SJ Berwin. Ryland left the firm on the day of its merger with King & Wood Mallesons, which created a much larger law firm based in Asia. This was the first-ever tie-up between a major UK and Chinese/Australian firm. However, he pointed out that his departure was not triggered by the merger but by the opportunity to join a firm with a wider global reach and significant expertise in real estate capital.

In his first interview with PERE since his move, Ryland explained that he was considering his options as his 25-year anniversary arrived last year. “One option was to stay in law and the other was to do something else, but this emerged as the right thing to do,” he said. “I have known some of the team at Paul Hastings for a while, and we share an important client. One of the things that attracted me to the firm was its expertise and depth in finance and capital markets.”

Over the past 25 years, Ryland has witnessed fund structures come in and out of fashion. The first fund he worked on at SJ Berwin was the MWB Leisure Fund in 1996. It was a fixed-life fund with carried interest linked to three-year rolling valuations. This, he said, almost became ‘the model’ for institutional funds for the next five years. “Of course, it is rare to see valuation-based carry now,” he added.

In the subsequent wave, the industry became focused on limited partnerships for specific property sectors, such as retail parks and shopping centers, and occasionally single-asset funds were created as a way of syndicating ownership. Ryland mentioned his work with Schroder Property in 1997 as part of this trend.
Schroder had acquired Fosse Shopping Park in the UK and wished to create a structure to bring in new equity. Ryland advised on creating a Jersey Property Unit Trust (J PUT), which benefited from favorable tax treatment, rather than a partnership structure, thereby pioneering its use as an offshore fund. Other assets to have J PUTs created around them include Chiswick Park in west London, which recently was sold by The Blackstone Group to China Investment Corporation for around £780 million (€947 million; $1.28 billion).

Another trend Ryland highlighted is the creation of real estate debt funds, which became active from 2008 onwards. He noted that such vehicles were “hard to close initially” as investment committees were unsure into which category of investment to place real estate debt – real estate or fixed income.

Ryland currently is working for a number of US real estate opportunity funds on European deals, and his team just closed a large hospitality portfolio transaction for such a firm. Indeed, the investment activity of US opportunity funds is one trend he doesn’t see dying out anytime soon.