H. Rodgin Cohen, Real Estate

Do Jon Mechanic and Fried Frank Have the ‘Un-Midas’ Touch?

Fried Frank logo.jpgWhat role do lawyers have in advising their clients on business matters? Some might say: None.
“The client decides on the business objective, and the lawyer helps the client reach that objective, as long as it’s legal,” this line of thinking goes. “And why would you want lawyers giving business advice anyway? They have no business training — and judging from how large law firms have fared in the Great Recession, they don’t seem to be particularly good at business either.”
On the other hand, one thing we commonly hear from the in-house lawyers we speak with is that they do give a combination of legal and business advice (not surprising, given that they have one client, which they want to see prosper). And some top law firm lawyers also get involved in the business side of things; they’re dealmakers in their own right, not just the folks who “paper up” the deals dreamed up by investment bankers. E.g, H. Rodgin Cohen of Sullivan & Cromwell, who played a major role in various bank M&A deals last fall.
Jonathan Mechanic Jonathan L Mechanic Jon Mechanic Fried Frank real estate.jpgFried Frank partner Jonathan Mechanic (pictured) — chair of that firm’s high-powered real estate group, with a top ranking from Chambers and Partners — is arguably the real estate world’s answer to Rodge Cohen. In the New York Observer, Dana Rubinstein began an August 2008 interview with Mechanic by citing a study declaring him to be “the best-connected and most powerful real estate lawyer in the world.”
But at least one ATL reader holds the opinion — a minority opinion, it should be noted — that Jon Mechanic’s track record isn’t so stellar.
The bill of particulars against Jon Mechanic and Fried Frank, after the jump.

From an ATL correspondent:

First off, thank you for doing such a wonderful job with AboveTheLaw. I grew up with Greedy Associates, which was filled with misinformation and inaccuracies. You have clearly contributed to the transparency in the legal community and this contribution is greatly appreciated.

One of the issues that I think has gone unrecognized during the economic downtown is reporting on the attorneys that have presided over the biggest deals gone awry and essentially led their clients into financial ruin. While we all know that lawyers are typically not making business decisions, a valuable attorney can steer a client away from a disastrous deals. Moreover, an attorney should bear some responsibility for protecting the personal wealth of his/her clients.

The current biglaw landscape is filled with prominent attorneys that led the charge into downright awful deals, but no group has had a worse track record than Fried Frank’s real estate department, led by Jon Mechanic.

GM building General Motors building.jpgThis tipster continues:

Jon, who loves the spotlight and has been described as a so-so attorney with a great publicist, expanded the real estate department at Fried Frank without caution during the boom, only to lop off close to half the associates in the past year.

Fried Frank layoffs, stealth and openly acknowledged, are discussed here (scroll down through the archives).

Moreover, his group has been at the helm for some of the worst real estate investments in modern history, and his client roster is filled with the poster children for overleveraged behavior. You could argue that he has risked the personal wealth of some of New York’s real estate titans by permitting his billionaire clients to sign guarantees and risk property that has been in their families for generations.

Maybe it is just coincidence or bad luck, but Jon and his team at Fried Frank seem to have the “un-Midas” touch, and many of his large clients have fallen apart. Among other deals, he has been involved in the collapse of Harry Macklowe and the forced sale of the General Motors building (pictured) and most of his real estate portfolio, Tishman Speyer’s troubled purchase of Stuyvesant Town at the height of the market, the fall of Broadway Partners and the foreclosure of the John Hancock tower in Boston and the collapse of Kent Swig and his return of The Sheffield to Fortress.

This diligent reader — we love it when readers do our work for us — provided the following links:
1. Tishman Speyer / Stuyvesant Townhttp://online.wsj.com/article/SB125547827547583747.html
Interestingly enough, The American Lawyer named Jonathan Mechanic their Dealmaker of the Year (Real Estate), for his involvement in the ill-fated $5.4 billion purchase of Peter Cooper Village (aka Stuyvesant Town) by a venture of Tishman Speyer Properties and a unit of BlackRock. Our reader ventured the opinion that this might be “the worst real estate deal of all time.”
2. Harry Macklowehttp://www.observer.com/2009/real-estate/macklowe-selloff-what-happened-harrys-buildings and http://therealdeal.com/newyork/articles/billy-macklowe-no-longer-the-kid.
The Macklowe real estate empire has been in free fall over the past year and a half or so. The Real Deal described Mechanic as “a longtime attorney for Harry Macklowe.”
3. Swig Equities: http://www.nypost.com/p/news/business/swig_is_close_to_bankruptcy_0cLY6oKfN29irBsKRglpxN
According to the Post piece, “[d]eveloper Kent Swig is close to filing personal bankruptcy because he can’t afford to pay a recent $28 million judgment on his defaulted Sheffield57 condo conversion project in Midtown.”
Our tipster continues:

Attorneys are great at jumping into the spotlight when things are going well, yet there is little that is said when they are at the forefront of fallen empires. There is no better example than Jon and Fried Frank.

Mechanic is a big deal. He loves the spotlight and will do just about anything for press. As a partner at another firm once told me, “Jon [may not be] the best real estate attorney in the city, but he absolutely has the best publicist.”

He loves nothing more than to preach about how much he loves all the real estate folks (an absolute charade given what he has done to them over the past year). But the real story here is how one man is sitting at the top of the some of the worst real estate deals in history…. And Jon Mechanic has his hand in all of them.

The counterargument to all this is obvious: “Hindsight is 20-20. The economic meltdown, including the collapse of the real estate market, caught many people off guard. If you’re the top lawyer in a field that falls apart, of course you will have clients who suffer setbacks. But that’s not the fault of the lawyers, who are responsible for legal execution of their clients’ business judgments.”
Our tipster’s rebuttal to that line of reasoning:

[W]hile some could argue that it was simply bad luck on the part of Fried Frank, I’d argue that Jon and his crew have done an inadequate job of protecting their clients from uber-risky deals and financial meltdown. By comparison, have a look at some of the other real estate groups in the city that have clients that are hurting, but nothing to extent of devastation Jon’s clients have endured. Foreclosure, bankruptcy, forced retirement — these are the words used for Jon’s clients, and that is saying something.

Jonathan Mechanic and a Fried Frank spokesperson did not respond to multiple requests for comment over the past few days.
So the question remains: Is it fair to blame the lawyers for bad business outcomes? Feel free to opine in the comments, or reach out to us with other interesting examples by email.
Moguls’ Mechanic [New York Observer]

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