Impact of Climate Change on Real Estate Law

Dr. Christian Schede discusses rent in large cities, the effect of Airbnb, and more.

An Interview With Greenberg Traurig
Best Lawyers

Best Lawyers

March 6, 2020 03:18 PM

This interview was conducted as part of the 2020 Edition of The Best Lawyers in Germany “Law Firm of the Year” award recognitions. Our partner Handelsblatt, also published these awards on June 27, 2019, online and in print in their June 2019 edition.

For Dr. Christian Schede of Greenberg Traurig—Germany’s 2020 “Law Firm of the Year” winner in Real Estate Law—this award is a culmination of teamwork and effort. Schede joined Phillip Greer, CEO of Best Lawyers, to discuss trends in real estate, how apartment sharing companies are having an effect on the markets and what is being done to reduce the impacts of climate change.

Greenberg is a very large international firm. What does it mean to you and your team to be recognized as a “Law Firm of the Year” honoree for your work in Real Estate Law?

Christian Schede: Greenberg Traurig is a very large firm, but it's run in a very nimble way. We are really one global firm and work together very closely. Every lawyer in our global partnership values that. And we jointly celebrate successes as this prestigious award that the German office in Berlin has received. We’re particularly grateful as only four years ago we, the German team, moved to GT. Back then, we clearly had a mission statement. Basically, our goal was to team up with the number one firm in real estate in the U.S. and become leading in real estate in Germany and, as a second step, in Europe. This award is a fantastic milestone during this journey. I'm truly honored with what we have achieved so far: being among the top handful of ‘go-to’ law firms for complex transactions, cross-border deals, and project developments. We are thrilled to have won this award from the oldest peer-leading and international legal publication. That is the proof of our recognition beyond German borders as well.

I would even say, winning this award for the German team means to also win it for our European team. This is one of the cornerstones to building our business jointly and building the Pan-European brand across Europe with five offices in London, Amsterdam, Warsaw, Milan, Berlin, and, additionally, Tel Aviv. Since our joining, the firm has more than doubled the number of attorneys in Europe. They're all top-quality lawyers in the real estate sector. We have more than 150 lawyers focusing on the real estate industry out of those five offices, plus Tel Aviv. And we are fully integrated with more than 450 real estate sector-focused lawyers globally. It's clearly one of the leading real estate groups.

With respect to housing, when it comes to large cities, rent is an area of focus. The largest expenses are often rent. One solution is more housing, yet it seems hard to keep up with demand. How have you tried to handle this and are there other solutions?

You're absolutely right. Housing has become one of the major social issues in Germany these days. Predominantly in the big cities, we face challenges. That's why it has also become the top current legal and top political issue here in Berlin. But it is also relevant on the federal level. We are currently in the middle of very heated discussion about the new state legislation passed in Berlin that attempts to solve the problems of increasing rent prices, notwithstanding the fact that the rent levels in Berlin are comparatively low to other leading German cities—not to mention other metropoles in Europe. The new state law provides for a rent price cap and mandatory rent price reductions. In addition, there is a political initiative from the left calling for expropriation of big private sector housing companies. All those proposals will be, in one way or another, a breach of the federal constitution and the constitution of the state of Berlin. That's a big legal challenge here.

Moreover, none of these proposals actually solve the problem. They rather fuel the scarcity of supply. None of these proposals is creating new affordable housing, which is needed. Only combined efforts can help this. What is required are combined efforts from the private sector as well as from the public sector to actually join forces in accelerating building permits, mobilizing building ground, fostering and structuring affordable housing programs and tailoring them so that they really reach those who are in need. Unfortunately, the current political debate has not solved any of these problems yet. The political debate has already destroyed value and more importantly, valuable trust in the reliability of our system. Thus, many international investors and developers have put future investments on development projects for residential housing in Berlin on hold. The only solution is to create more apartments in all relevant price segments and for this purpose to mobilize appropriate lands, of which it is still sufficient in Berlin. It’s good to see that there is a growing bipartisan political movement in Berlin requesting the state of Berlin government to launch a program for 100.000 new social housing.

Part of the solution is to change the laws and reorganize the administration to significantly accelerate the process of building permissions. We were the first law firm that has publicly declared and published views about the lack of constitutionality of the new rent price cap law. Our opinion has received support from the majority of legal experts, including the former President of the Federal Supreme Court. But as I said before—while that's the legal aspect—most importantly, we are advising real estate industry associations and our clients on developing legal strategies, to cope with the statutory and constitutional challenges. That's why we are really at the forefront of the legal and political debate on rent price law here in Berlin.

In a slightly related issue. The popularity of sharing programs like Airbnb has grown in recent years. It's caused some issues with subletting. In some cases, who is responsible for the damage? How have you advised clients for changes like this in the marketplace?

Sharing communities, like Airbnb, have intensified the problem of the housing shortage in Germany, particularly in the big cities. Most of the German cities have reacted by establishing regulations, forbidding that flats are used for purposes other than residential—the so-called housing misuse ordinance. That's how the authorities have reacted to that. Our advice is clearly to comply with those regulations. We encourage new clients as well as relevant authorities to make sure that they actually relax the tight residential market by increasing new affordable housing stock.

Transitioning to climate change, how much of an effect is this having in the way of buildings are being developed? Are certain areas of land becoming influenced by shifting effects from nature? Would one of the examples be what you were speaking on earlier? Or, what are your thoughts on this?

Well, obviously climate change is a very important topic for the real estate industry in general, because of the building stock we have and the way buildings contribute to carbon emission. Clearly, the general political goal to become carbon neutral until 2050 also applies to the real estate sector. In Germany, there have been regulatory requirements for the energy efficiency of new buildings. Therefore, for more than 15 years now, that’s nothing new. The regulation has significantly increased these requirements over the past years, which does not make building cheaper or make affordable housing any easier. There's a clear conflict of interest between becoming carbon neutral and offering housing at affordable levels.

The requirements, which the government has set for new buildings, have increased over the past years. In some instances, there are even technical limits to meeting those requirements. Therefore, the biggest potential is to reduce the carbon emissions of existing buildings. That's a very important area, but that only applies to new or fundamentally refurbished buildings. However, the government cannot request house owners to implement energy efficiency measures because, under the current legal regime, it's not possible to force a house owner to do it. That's why the German government recently decided in its climate package, or “Klimapaket”, that there will be a price for carbon emission in the real estate sector: it will move from 10 Euro per ton in 2021, to 35 Euro per ton in 2025. This means the cost for heating and warm water supply in buildings will increase during the next five years. Therefore, there will be a genuine pressure, a genuine incentive for energy-optimized buildings.

Are there any projects or upcoming work you are particularly excited about?

Clearly, one of our recent highlights was our involvement in the takeover of our long-time Toronto and Frankfurt listed client Dream Global REIT by Blackstone. This 4.7 billion USD transaction was probably the biggest real estate deal in Europe. Compromising 215 properties across Germany, the Netherlands, Austria, and Belgium. We had the privilege of advising Dream since their very first steps into Europe back in 2011.

This interview has been edited for length and clarity.

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