About seven years ago, the fast-rising real estate market in this country became an irresistible lure for Monika Rutland, a partner in White & Case's Prague office, and her colleagues. Until then, the real estate division in the respected global law firm had been covered by mergers and acquisitions teams. The local branch's decision to launch a separate real estate department was adopted by White & Case's offices throughout Europe.

"We were among the pioneers in launching separate real estate departments at White & Case," Rutland says.

In contrast to White & Case's early days in the Czech Republic in 1991, when most real estate transactions were driven by privatization, the focal points this time are development projects and the expected rise of real estate retail funds.

"As the real estate market matured, some of the pioneer investors into emerging markets are gone, but a new wave of conservative investors is expected," Rutland says.

While admitting a possible decline on local real estate markets in terms of the number of transactions, Rutland says she's not worried about a recession.

"There are still many investors worldwide who perceive the Czech Republic as an emerging market," she says.

Rutland, along with Václav Kubr, an associate lawyer with White & Case, recently sat down to chat with The Prague Post about the development of the firm's real estate division and its plans for future.

The Prague Post: What actually made you put so much emphasis on the real estate sector?

Monika Rutland: In the early 1990s, when White & Case was launched in Prague, we mostly focused on privatizations. This was a trend in the whole of Eastern Europe. Meanwhile, in Western Europe, there was an emphasis on banking and project finance.

Privatizations put real estate in the spotlight because real estate transactions were often involved in particular privatization cases. Privatizations, and also the first greenfield investments, virtually brought us to the real estate business. Still, in the mid-1990s, we only had about 15 to 20 lawyers, and we could not fully focus on real estate; it was part of the mergers-and-acquisitions department. We made the decision to launch a separate real estate department about seven years ago.

TPP: How has your real estate customer base developed?

MR: There were privatizations and greenfield investors at the beginning. Later on, new types of clients came along. As time went by, retail networks began developing the first shopping centers rather than building up separate supermarkets or hyper-markets. This created a need for investors to form joint ventures with developers. Further on, we began working with developers. Now, given the fast-expanding market, we work with developers and also with real estate funds that are purchasing properties. In general, clients are getting more sophisticated and they demand advantages of a package that includes not only the real estate expertise but also tax structuring and financial capability.

TPP: Earlier this year, the Czech National Bank agreed that real estate property funds could be launched. Will they become your principal clients in the near future?

MR: The problem is that the current legislation dealing with the regulation of the funds does not work, and the Czech National Bank has not issued licenses to the funds yet. We're now awaiting an amendment to the law. Work on it should start in January, and I will be a member of the committee developing this new legislation. The process of drafting the amendment should take about six months. Then it'll be passed on to Parliament.

TPP: Who are your most common clients at the moment?

MR: Our clients range from individual developers to institutional investors that are represented by Czech or foreign closed real estate funds, which operate on the basis of taking money from investors and purchasing real estate. Later, they sell the real estate and pay back the yield to investors. There are more than 200 such funds in Europe. Several such funds are doing business in this country.

TPP: What are the most important real estate fields that you focus on?

Václav Kubr: Our portfolio is quite big. Office and residential projects, be they inside or outside of Prague, dominate. A booming field is logistics; for example, the development of stocks and distribution centers. On the other hand, the share of retail centers is expected to shrink. The market should be saturated within a couple of years.

TPP: Real estate prices are expected to stop rising, and this could lead to lowering yields of developers and real estate lawyers. How much of a concern is this for you?

MR: Yields from funds and for developers could drop, but it should not affect our prices, because they are rather low in comparison with Western Europe. It's possible there could be fewer transactions. There are different opinions about the development. The yield is shrinking also in new markets such as in Romania or Ukraine, but there are much bigger legal risks there in those countries than in Central Europe. A buyer then often deals with the question of whether it would be better to buy something in Central Europe rather than to chase in the East a yield higher by only about 2 percent, but at much higher risks.

VK: It's also about psychology. Investors in our markets have experienced the move from emerging to mature market, and they saw a big price increase in a short time. Now, they may think that the same story will repeat in countries farther east, but it's not guaranteed.

TPP: So you are not afraid of real estate investors' exodus to the East?

MR: Well, some investors, especially pioneer investors into emerging markets, will leave. On the other hand, more conservative investors are about to come here. Some investors were, for example, allowed by their foreign owners to do business here only after the Czech Republic's accession to the European Union in 2004 because they can only do business within the EU. And there are still many investors worldwide who perceive the Czech Republic as an emerging market. I think there will still be enough transactions in the Czech Republic and in Central Europe because there are still enough transactions in Western Europe. Unless there's a major world crisis originating in the United States, the market will still be sustainable.

TPP: Which particular real estate sectors are most vulnerable to a decline?

MR: It could be in particular sectors, such as in residential projects, following the [2008] VAT increase that is currently being discussed. But it'll be only temporary. In Slovakia, such market stagnation lasted only one year.

VK: It's always a matter of a limited time period. Two years ago, there was a high vacancy rate in the field of administration centers, but, alongside with the overall growth of the economy, new companies came in, standing companies expanded, and so it led to further expansion of administration centers.

TPP: Where do you see the market's growth potential?

VK: I can see expansion in the logistics sector, and it'll also be about regional development. Different development projects will fill gaps in the regions where they are missing. Development of hospitality facilities for tourists in various regions throughout the country stands as an example.

TPP: And what is the current prognosis of White & Case's development in the real estate sector?