Enzo Sallese, partner at Minden Gross LLP, speaks with Lexpert TV about the challenges and opportunities facing the real estate industry, from interest rates to ALSPs.
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Greg Hudson [00:00:07] Hello, welcome to Canadian Lawyer TV. My name is Greg Hudson. Today we're speaking with Enzo Sallese. He's a real estate lawyer, we're discussing the future challenges and the current challenges that he and other members of the bar are facing in the real estate practice. Enzo, thank you so much for being with us today. What would you say the current challenges are, for members of the bar presently, when we're talking about real estate?
Enzo Sallese [00:00:34] Well, I think it's something that's not unique to my area of practice, which is commercial real estate and secured lending. I think it this is true across the board, I don't quite see ourselves totally on the other side of the pandemic, and the pandemic posed all sorts of different approaches to getting work done. And a lot of those have remained in place, one of the biggest ones is the, you know, the return the return to work. And, although technology has been very helpful in helping us, you know, keeping the ball rolling, the new sort of the new work patterns, hybrid, hybrid working practices, present some, some challenges, to getting the work done, and, and perhaps more importantly, to the development of the skill sets and experience and knowledge of those who are just getting started in their, in their careers. For some of the more senior practitioners, they've had the benefit of more experience, mentoring, collaborating with colleagues and staff. And that, unfortunately, has been that experience and the benefits of that experience has been taken away from a lot of younger, younger associates, some associates will, you know, been practicing, you know, that early phase of their careers, that's all that they've know. And so, for some of them, they, they, they don't know what they're missing. But with the, you know, with the, you know, the senior practitioners with the lens of experience, we could look back and see how they are, this is this is unfortunately, retarding some of the normal progress, of knowledge and experience, and all sorts of, you know, all sorts of things, even sort of the practical side of the administration of the business of law. Because working, you know, working remotely you are, you are away from so many things that go on, in the practice in the business of law. So, I see that as a as a, as a serious as a, as something serious that we've got to work through right now. There has been a bit of a push to try to get people back to work, we've only, we've only recently ramped up our expectations in terms of what we want from our staff and associates regarding their commitment to be present, but again, we know we can't push too hard, because there's always the issue that people may go somewhere else. And I guess, like in any in any industry, it's hard to find the talent. And we'd like to keep people here and we'd like to keep them happy. So we're aware that it's important to them, because, again, for a lot of them, it's all that they've known. But again, keeping in mind that we'd like to get to the point where we're, there's more direct contact, more and more collaboration being present in the office, because again, we do still see the benefit of that for our profession.
Greg Hudson [00:04:01] Yeah, for sure. What are some other ways to that you've gotten around that or that you tried to address the these challenges?
Enzo Sallese [00:04:08] Well, technology certainly helps. You look, we're doing this interview via zoom. And that sort of seems to be the you know, the technology, even almost replacing phone calls. So whether it's zoom meetings or team meetings, So that's great. But we sort of had that before we sort of had that before, you know, conference calls people connecting remotely. That wasn't that wasn't something that was foreign, even, you know, in prior days. But again, but again, it's it became absolutely necessary during the pandemic, but it's, it's becoming more regular, again, even sort of for regular meetings, even client meetings that everyone seems to be prepared to, hey, send me a zoom link, and it's one click and, you know, again, one of the benefits of the technology that we have that we've that we had to adopt very quickly during the pandemic, but it's certainly how it certainly helps people get connected. But again, technology can help and sometimes technology can hurt
Greg Hudson [00:05:11] With rising interest rates, and like the obscene cost of housing, what are some challenges that that you've seen enter your practice? Is there any, you know, ALSPs, alternative legal practice legal services providers? Is there any way that there are other sort of means of going about real estate law that isn't that's sort of new or that it hasn't been worked out yet?
Enzo Sallese [00:05:22] There's reluctance on the lending side. And I think at all levels, whether we're talking about residential real estate or commercial real estate, there is a certain reluctance now, or fear, perhaps, to sort of rush into to rush into transaction. So what that's translating into, based on what I see, and what other practitioners have shared with me, as far as their experience is concerned, as things are taking a lot longer to analyze. So there's some fear about where interest rates might go at any given time. People are watching trends, when there are sort of deals in the hopper, they're taking longer to get approved, much more so perhaps at the at the commercial level. So deal cycles. So transaction cycles are taking much longer. So deals are taking longer to consummate, and the, that gives lenders the time to sort of reconsider. And so I think in the long run fewer and fewer deals, we've seen, we've seen in ourselves a bit of a drop off just in general in terms of the number of the volume of transactions coming, you know, coming down the pipeline. And I'm sure it's, again, very few people are buying real estate, all cash. So it's tied to the cost of lending. And the economic environment is certainly contributing to, to the slowdown and the approach to underwriting and analysis. So the longer you worry about risks or analyze risks, sometimes the more you seem to find risks. So I think that's impacting real estate transactions in general. Well, we've seen We've seen it easily over though, I've been practicing for about well over 20 years, we've seen the commoditization of real estate in general, certainly in the in the residential real estate area. However, we're not quite where we're not quite at the point where they are the United States where they have closing centers and title insurance companies are sort of hand are handling all aspects, essentially all aspects of real estate transaction, the purchase and sale side, the financing side, or at least the administration of the financing, and the closing. We're not we're not quite there yet. But in the real estate bar itself. Practitioners are sort of doing it themselves. So there's a lot of competition when it comes to residential real estate. And so it's putting a lot of pressure on lawyers to keep prices down. Whether we get to the point where now there's going to be sort of central services for real estate, residential real estate purchase financing refinancings? I think it will, I think it will come the real estate bar will certainly resist that because they resisted, they resisted the American model of closing centers, So we managed to fend that off and preserve real estate transactions, the responsibility for closing them and advising clients to licensed real estate practitioners in Ontario. But again, with the advent of a better technology, that trend towards commoditization is going to is going to increase and so it may be around it may be around the corner. How far around the corner? I'm not sure right now. Time will tell. I think it's coming. I think it's coming but we'll see a ramp up in the attempts to become more efficient in the real estate bar itself and then possibly a leap to a similar model, not necessarily the same model that they have in the US through the title insurance companies and their closing centers.
Greg Hudson [00:10:10] What other future challenges, can you sort of foresee that will impact real estate?
Enzo Sallese [00:10:15] Well, we've been talking about it already a little bit. And that is the impact of technology. AI for one, our profession is certainly one that has a lot of exposure when you break down the various elements of what it takes to complete a real estate transaction, the various steps, the various things the lawyers have to go through, there is a lot of exposure to automation, in our profession, there are all sorts of tasks that, you know, conceivably could be covered by AI. So what that means for us is that we have to, we have to re examine the roles, we have as lawyers, we have to re examine the skill sets, because we need to adapt them to complement the technology, because I don't think we will ultimately be able to compete with certain efficiencies that the technology brings. So we try to stay ahead of that. One of the but one of the problems with that is technology, the advances in technology, especially AI, I think they're accelerating at a far greater rate than other technologies that have come along that have helped us. And then again, getting back to that there's that old trend to commoditization. So there will be a race to adopt AI technology and implement it. But then that's going to circle back and have an even greater impact on the development of the future lawyers in the profession, because the more we're reliant on technology, the less we become reliant on people, but we're sort of taking away the foundations and the knowledge of from people who ultimately will be in the position to do the quality control in the future. So there's all this, you know, we have the real estate bar is, you know, in Canada, compared to the United States, it's relatively small, Toronto is one of the bigger markets, if not the biggest market. And the, you know, the elder states, people love the real estate bar, that all of that intellectual capital, we have people who are in their, you know, in the twilight of their careers, they're not going to be around forever, and sort of passing on that wisdom. In that experience, there are fewer and fewer to sort of receive that, and then fewer people going through, you know, learning the ropes and what have you, and applying wisdom and experience to transactions and, you know, and, and challenges that are presented from, you know, difficult transactions that you're going to, you know, you're going to see in the future, some, perhaps some gaps, gaps in knowledge, again, you're going to have this dwindling demographic of individuals who have that intellectual capital available to them and other people trying to catch up. I shared recently my sort of my analysis of, of this, it's like, you could do all the reading in the world, about being an excellent surgeon. But unless you do the surgery, I don't think you're going to be an excellent surgeon. And so we need you know, it's an old expression, but we need people to get their hands dirty, roll up their sleeves and getting grossed in transactions, difficult transactions, work with others share, collaborate, again, technology is taking away the opportunities for that, because again, we're trying to we're trying to become more efficient. But there's a cost to that. And I see that and I see that as, as a serious, serious challenge to the future of our profession.
Greg Hudson [00:14:16] Yeah, it comes full circle. I mean, we started talking about, you know, the need to sort of come back into the office. And that would be sort of one of the solutions to what you're talking about.
Enzo Sallese [00:14:26] I think the hybrid working practice, I think it's I think it's perhaps here to stay. I'm just reading some more recent articles on the subject, especially in some of the larger markets. If if it becomes acceptable there it will become acceptable here. But again, we've got to sort of work against the the negatives that might present for us.
Greg Hudson [00:14:53] Thank you so much for all your expertise and your insight.
Enzo Sallese [00:14:56 I thank you for the opportunity to share my ideas and I look forward to some future chat so maybe we can reconvene and discuss whether some of these predictions came to pass.
Greg Hudson [00:15:07] This has been Greg Hudson, for Canadian Lawyer TV. Talk to you soon.