On December 19, 2016, CEELM reported that the United States's W.P. Carey Inc. had acquired a logistics center in Lithuania and signed a long-term lease with Kesko Senukai. Ziad Hammodi, Managing Director and Chief Global Transaction Counsel at W.P. Carey, agreed to comment on the deal.
CEELM: Because we’ve covered a number of your acquisitions in CEE, what particularities would you identify in the legislative frameworks of this region that impact such deals that differ from those you have concluded in the US?
Z.H: This transaction is primarily driven as a long-term lease investment. Therefore, the major considerations are the legal framework associated with contract enforcement and most importantly the remedies available to the landlord. We pay particular attention to the impact on our contracts of local bankruptcy rules and try to determine our perceived consistency with U.S. legal principles. We have substantial experience making investment decisions throughout Europe and have found the Lithuanian legal framework to be very consistent with other more mature European real estate investment climates, such as those in the Nordic region.
CEELM: Now that the deal is finalized, what aspect of how you structured the investment are you happiest about and why?
Z.H: The largest impact of our transaction is not just that it was successfully completed with financing ahead of schedule in a new country for our fund. Rather the investment stands to illustrate to the rest of the local Lithuanian market that W. P. Carey can be a valued international partner for other investors, developers, banks, sellers, and tenants looking to unlock value for their own shareholders using our long term financing strategy.
CEELM: Sorainen reportedly assisted you both in the acquisition agreement as well as the lease with Kesko Senukai. Did these two run in parallel, and how, if at all, did they influence each other throughout the process?
Z.H: Yes, definitely. The lease was an integral rationale to the investment decision. Therefore, it was imperative that the lease be in place at closing. Sorainen helped us navigate many of the transaction considerations in this simultaneous negotiation with the seller and the tenant. We had contemporaneous negotiations with the seller and the tenant, both very sophisticated companies with multiple shareholders, and obviously each facet had its own considerations. It is always difficult to time both portions of the acquisition and the lease, however with Sorainen’s very experienced team, negotiations and drafting sessions worked in tandem very efficiently.
CEELM: And speaking of Sorainen, how do you usually select the external counsel when you enter new jurisdictions and why did you rely on specifically Sorainen’s advice on this deal?
Z.H: When we enter any new market we rely on our various law firm relationships to introduce us to local counsel. When that is not available, as was the case in this transaction, we conduct our own independent assessment of the handful of firms in the market that we initially identify that are capable of advising similar international investors. A firm is the sum of its parts, so its overall reputation is less important than actually the lawyers advising us and handling the day-to-day aspects. Certainly, larger firms are able to more efficiently manage larger portfolios or more sophisticated facets of an investment, for example offering advice of tax structure, fund formation, diligence, contract negotiations and so forth. We interviewed and handful of firms and quickly determined Sorainen would be an excellent partner for our entry into the Lithuanian real estate market.
CEELM: Generally speaking, do you tend to involve your in-house legal function in structuring and closing deals or do you tend to have your "deal guys" interact directly with the external counsel?
Z.H: I joined W. P. Carey in 2015 after having spent 12 years heading up the Real Estate department in the New York office of Reed Smith, a top-25 global law firm. We have a substantial in-house team based in New York that manages all facets of our global investment decisions, including very closely structuring our investments in close tandem with our local counsels. We are in the trenches from start to finish with our investment team and then very involved in helping our asset management team during the period of our investments. We have found this approach ensures a consistent approach to our investment decisions while also creating substantial efficiencies in ensuring a timely transaction timeframe for all constituencies.