#355 - Michael Fishman & Michael Baum - Shareholders of Global RE Practice @ Greenberg Traurig, LLP - Legal Best Practices & The Egoless Partnership

Chris Powers: All right, fish and baum. Thanks for joining me today. 

Michael Fishman: Thank you for having us. 

Michael Baum: Thanks for having us. It's amazing. It's our pleasure. 

Chris Powers: You are two of the most exciting and fun people I've encountered. So I was sitting at IMN last year and trying to remember who it was. You got to come to the pool and meet these guys, fish and baum.

It's like, who are they? I'm like, they're lawyers. I was like, I don't know. I want to go down and hang out with some lawyers right now. And he's like, no, you have to meet him. And within like five seconds, I was like, holy shit. These two are different. I want to start the conversation here.

You all have a really, even just the last 30 minutes, you all like to finish each other's sentences. It's a partnership like I've never seen. And you guys call yourself the egoless partnership. Before we define what that is, how did you all even meet? Like, what's your all's deal? What's your chemistry?

Michael Fishman: Let me go first. 

Michael Baum: Take us off.

Michael Fishman: All right. So we met at Mayor Brown and Plaid, now Mayor Brown. In about 2002, I was a senior associate. It was the old school days, work billing 2 400 hours. Nobody cared what you were working on; get it done. I was the guinea pig who decided to start doing cross-border work for our private equity clients.

So, I started spending a lot of time in Mexico and Brazil. The practice started taking off, and we didn't have anybody to help me. I was trying to build the practice while still being a senior associate, which meant I also worked for all the partners on their stuff. So I went to one of the people in the finance group with whom we shared a client relationship and said, Hey, I need some help.

And he's like, well, I found someone so excited. Who is he? Well, he only knows a little about real estate. He's in the securitization department. All he's been doing is signature pages. He was an excellent secretary, but he studied in Madrid during college, so he speaks some Spanish.

I'm like, well, I've got nothing else. So Mike shows up, and really, the rest is history.

Michael Baum: And Mayor Brown, it was interesting that they didn't group you by practice securitization department. He was in the real estate group. We were on the 33rd floor together, where they put me.

He was right when I came in as a first-year associate and further backtracked. My only qualification was that I spoke Spanish. There was nothing else. And if we had yet to meet, there's no way that I would still be a lawyer. My path was different. I'm a finance major and came from an entrepreneurial family.

Business was always in my blood, and that's how we built the business. Being lawyers was our skill set, what we know, and what we do, but doing more, doing it the right way and doing it together was how we built it. So the fact that we randomly came together, his mother was my wife's learning disabilities Hebrew school teacher in Cleveland.

We found out a year into our relationship: a niche business, learning disabilities in Hebrew. Right. So, the fact that we came together as randomly as we did, I view it as strange serendipity.

Michael Fishman: Now that you remind me, I grew up in Cleveland. His wife grew up in Cleveland.

Right. It's a small world, and we all start connecting the dots. And here's the two of us. So start talking about what happened. So we're spending time in Mexico in 2005. The first, we'd spend 60 or 70 nights in Mexico City. 

Michael Baum: Yeah. The tortilla soup at the Four Seasons is excellent

Michael Fishman: And, so, it is excellent. We’d sit outside the courtyard, and to the point where I was, we were the two Miguel’s, and I was Miguel. And he was El Outro. The other Michael, for five to ten years, nobody called him Michael. Where's the El Outro?

And when we knew we were, as you said, because we don't have to talk to each other, our wives got upset with us about it. Everybody is, we don't have to talk. We're like Star Trek. We, our minds, whatever, he's better than me at math, but otherwise, our minds work the same. And we just realized we were clicking and that we'd be down in Mexico. By ourselves all the time, right? 

Chris Powers: Working on what? 

Michael Fishman: Cross border private equity. 

Michael Baum: And let's talk about how we built the practice. Yeah, go ahead, Mayor Brown. It's a tough spot.

Michael Fishman: So it was real, Mayor Brown; we'll talk about sort of our transition over to GT at the time, but they were brilliant, brilliant.

Okay. These guys were as smart as you could ever find, but they did not suffer fools. And it was being trained in the army. Right, so you had to work hard. I realized that if I was going to make a partner cause, Michael was nine years younger than me, I had to do it; I had to make myself exceptional in one way or another.

Whether it's generating business or doing something nobody else would do, I said, Hey, this cross-border thing's enjoyable. It's not dull. It requires emotional IQ. I didn't know what emotional IQ was at that point. And I didn't have much of it, but I knew it was interesting.

Right. Because when you got, when you start doing a deal in Mexico, the first assumption that anybody makes is we're the ugly American. It's going to tell them how it is. We're good at lecturing people. And we said, no, right. When a client steals his line, you have to tropicalize your practice.

I'll always remember. We were doing a deal for an insurance company, which I won't name as an in-house general counsel, right? Who wasn't the most dynamic person? And I'm negotiating a JV. Okay. And I had pulled out all the EEOC provisions and the documents, right? He calls me up and asks why I took it out.

And I said, well, we're in Mexico, right? Do you want me to import Caucasians to comply with the provisions? It makes no sense. So it was those things where you had to tropicalize the practice. Michael and I learned fascinating things from it, right? For example, when you go to a meeting, if nobody's sitting at the head of the table, it means the boss isn't there.

You could spend three months negotiating, and on the last day, there would be no deal because nobody was sitting at the head of the table. We'll talk once you bring the boss.

Chris Powers: So, what are you doing in those meetings? 

Michael Baum: You're setting up relationships. You're making sure that they trust us.

Okay. We're doing all the little things that, again, as we learned all the best practices we brought down from being at a high-end law firm, we realized that bringing those across the border. It's a great story of how we figured out that the other things in practising law are equally or even more critical sometimes are the documents or like learning, knowing your counterparty, knowing what's important to them, knowing how they react, knowing the room and knowing who you're dealing with and who you're not dealing with, knowing what the other lawyer's agenda is to stall you because the decision makers are not there or to make your life challenging to grind you out to let someone else win ultimately. Right? And it was going down to Mexico on a Monday morning. Everyone locked them, we made people leave their phones outside, and long launches where we had to pretend that we were drinking the same amount of tequila as they were to make sure that we could be qualified later in the day to negotiate because they were taking advantage of us, that was the game. 

Michael Fishman: Oh, let's get the gringos drunk and let the actual negotiation starts at seven after there's 10 shots. They should have remembered. I went to Ohio State University, meaning I could hold my own, especially when I was young. It was my third. 

Michael Baum: I couldn't; I was pouring them under me.

Michael Fishman: And so we developed these reports, and it was about the beginning of what we learned: real estate is a people. Sure, substantively, you have to be a master of your craft, and you have to understand cross borders, particularly. But what we were doing was deploying best practices.

I used to say, well, what's cross border? I said, well, if you take an aircraft carrier. And you can park it next to any country in the world. We have the most significant air force. It's just how it is. So, let's take our aircraft carrier and deploy that best practice. 

Michael Baum: And great substantive stuff was title insurance.

We were the pioneers of that, bringing it down to Mexico. So, in terms of substance, we brought—we'll call it U.S.-style institutional style—a better way to think about it because we were always careful not to say this was the U.S. way or the Mexican way. It was the institutional way of doing business, and we taught them, and as Michael said, we tropicalized them to see that this wasn't a fight.

It wasn't an adversarial piece, but to attract U.S. institutional capital, whether pension fund money or endowments, whatever it was with private equity masters of the universe who needed to report to their investment committee, they needed to have a certain level of institutional quality investment.

To do that, we had to bring those practices down there, and we fought to the death until they realized that we were on their side, that we were not there to flex our muscles and tell them that we're the Americans with all the money and that this is how we're going to do things. That was the part that we did well.

Michael Fishman: And the thing that we also realize is that, typically, people, even to this day, teach our people, and we know your customer, right? We put a book together: I have a new deal. Right. And the lawyer jumps on. Do you want to know who the client is? Do you want to know if they have an in-house counsel?

Do you know what their hot buttons are? Do you want to know whether they care what the documents say? And so we were very mindful of what mattered. None of the 50-page or 80-page JV you do stateside mattered because if you were in dispute in Mexico, remember America's greatness.

Okay. Due process. Right. And the rule of law, no matter who you are. Okay. With one exception, you have your day in court. Right. Well, down in Mexico, forgive me, my Mexico friends. You might miss your day in court. So everything we were doing, and often we've been negotiating with our clients because they weren't thinking outside of the proverbial box saying, guys, the key is to make sure we are fighting, and the money is in the States.

Okay, because in Mexico, you don't go to civil court if you get in a fight. If you do, somebody will call the local prosecutor and arrest you. It's a different game. We spent enough time down there to learn the game and understand that it's all about de-risking the cross-border lack of due process. 

Chris Powers: Was it easier to do business in Mexico today or more complicated?

Michael Baum: It's easier. And there's no question that as that market had grown 20 years ago when we started doing this, a few groups were investing down there, and now it has undoubtedly become way more institutional, and those habits are learned.

Chris Powers: Do you have to be in a joint venture with a Mexican firm to do business? Could an American firm do its thing and buy buildings? And obviously, you're working with vendors down there. Or do you have to have a partnership? 

Michael Baum: Well, you tell us, Chris, right? So, if you're buying an asset outside of that is  your hometown,

Chris Powers: Then I'll pose it this way: I come to you guys and want to start doing business in Mexico. How should I gear up for this? Mexico City is about to blow up, and I want to get in. What do I need to do?

Michael Baum: Our success story is similar: pick your right, pick the partner. 

Chris Powers: You have to have a partner there?

Michael Baum: Playing a road game. In any place, whether that's New York or Chicago or Los Angeles, if there's any heavy lift, if there's anything you need to do other than buy a triple net lease building and sit there and collect your rent, if you don't have local knowledge, local expertise, local relationships, I think that you're setting yourself up for failure because as you said a minute ago, real estate is still an individual and it is a relationship game. It just is. 

Chris Powers: But do they need to be in the documents with me, or do they need to be my friends? 

Michael Baum: The best way to succeed is to align interests, and the best way to do this is to align economic interests and align and align the legal outcome to the extent that you're not. 

Michael Fishman: If you want to think about how we practice law for a second, Michael segued right into it.

When you think of a joint venture, right? Like buying and selling simply because You're not getting married; it’s a short-term relationship, 30 days, 90 days. You're assuming a loan. You're out. 

Michael Baum: And if the buyer wants to buy in the seller and wants to sell the document, it means nothing. 

Michael Fishman: So, what's a joint venture agreement? A joint venture agreement is a prenuptial agreement. Right. And really, what we're saying is, okay. Where are the counterparties, and does this cross border or not? And I agree with Michael completely. You want a local partner, no matter where you are, because they have the knowledge and the relationships, and computers can only do so much, right?

Co-star can only do so much. Google Earth can only do so much, right? But if you sit and think of, all right, let's look at a partnership as a marriage and over time, just like marriages, you cease to be aligned. Your interests change, right? You have kids. You get deals. You only have a little time.

So we're in this partnership. Even if everyone is acting in good faith, cause that's always the working assumption, a client said to me years ago, fish, I'd rather have a crappy document and a good partner than an excellent document and a crappy partner because contracts are meant to be broken.

So we think about where we will misalign, and we all know what it is. Somebody wants to sell when the other wants to stay in, right? The deal went sideways. Somebody wants to put a rescue capital, but the other doesn't, right? Somebody will have issues with a lender because it's the sponsor.

How do you ensure the 95% or 90% partner has a different interest? It can't stop that five % or ten % partner from protecting their reputation and business. So we're always trying to think about things upfront. Are we aligning interests? And are we thinking about what it will look like in five years?

And that's the same thing; crossing the border makes it more challenging. Right? 

Michael Baum: Because the culture is different. 

Michael Fishman: Because the culture is different. The legal system is different. It's a civil code system. Right? Napoleonic code. They interpret things differently. American lawyers are taught to try to find an angle to get the correct position, and I say this not pejoratively.

Right? Hey, that's not, lawyers. The good facts make good laws. That's right. So, if you don't have the law, argue the facts. If you don't have the facts, argue the law. And if you don't have that or anything, throw it all on the wall. In a civil code system, you can't do that. It's a rote interpretation.

Right. Chris Powers is wearing a white shirt. That's it. That's the only thing he's wearing: a white shirt. Can't see him. You're right there. So, right. It's just a very different game, and it, in hindsight, cause we were running around, trying to, our fallback plan, by the way, was Michael's Dad was in the, when you went to the airport, okay.

You had a headache and needed to spend 15 bucks on two Tylenol. He'd be the package. So the fallback plan was, well, if we blow it, we'll go package boxes because we speak Spanish. Yeah, that'd be great. That was the fallback. It was not kidding. We didn't, mainly when discussing moving to Greenberg; he was 20 and 24.

Chris Powers: How do you fail as a lawyer? I've never heard of a lawyer, so I couldn't. 

Michael Baum: Well, there's a lot of ways to fail. 

Chris Powers: How do you actually, I maybe get it in business. 

Michael Baum: Well, the question is, what does it mean to fail? 

Chris Powers: What does it mean to be a great lawyer?

Michael Baum: Well, that's a great question. So, there are a few answers there. And you mentioned it a minute ago. There's that baseline of hard work and mastering your craft. And there's a lot of folks that just. Don't just don't do either of those either. For whatever reason, the elevators go high enough up that they can master their craft, or they don't have the work ethic to put in the time and put in the hours and do it right because, sure, our life, our daily life is a lot different now than it was five years ago, 10 years ago, 20 years ago.

I didn't pick my head up for 10 years, put my head down, and ran. And we spent, we talked about 60, 70 room nights in Mexico City. It was when I was having three kids. There was no home office. There was no getting home at six o'clock for bath time. That didn't exist. I was gone. Right. Monday through Friday, we were building the business together.

It's what we did, right? So we can talk about the Naniwa sushi we ate for 200 nights.

Michael Fishman: And we have mercury poison to prove it. And funnier than that, Naniwa sushi in Chicago is 2558855. Okay. And my home, Michael's home phone was 2558555.

So half the time I go, I'll do it. I'll call sushi, and his wife will answer. I'm like, Hey, I'll, we're going to have the regular, she's like fish wrong. Call the house. Once, she took the order, which was the funniest part, right? Like, where's the food? And then she's like, guys, you ordered it.

Michael Baum: So the best way to answer the question is.

So, that is the baseline. Right. But our success is about more than that. Right. Our success is about the fact that you can be a successful lawyer and you can have when I, however, you want to measure success, and you can have an excellent practice, and you can have an associate or two who works for you, and you can make a healthy living.

Right. No question about it; it's an honourable profession. You show up to work, you do your job, you train people, you do it right. You have a few clients that believe in you. Right. But we've our different ways of doing things. And I was the guinea pig, and I was to pay it forward and build something more significant than ourselves.

Right. And to build a real business And a real team, no different than any other business gets built. 

Chris Powers: It's like a mafia. 

Michael Baum: No question. We're actually—it's a great segue. We're here with our best friend, an insurance agent. Joshua's associated agencies are the largest privately held insurance company specializing in risk management for real estate and private equity, the best in the business.

Okay. But you said it. We have our. You said you saw it at the pool. We have our friends, and our clients are our friends. We are not just their hired guns. We are their partners, we are their friends, we are everything, and we expect mutual respect. And what we do is we bring them together in that same way because if you're a part of our world, we want them to be friends.

We want them to transact together because you talk about the best way to do well in business: to align yourself with people who share the common goal of others doing well, not just themselves. And that's how we built. 

Michael Fishman: And so we wouldn't have done that, too. Cause he still needs to answer your question.

Cause he's a good lawyer. How do lawyers fail, right? To us, failure would have been, and again, I avoid causing everybody to have a different skill set. The biggest put down to me is if I get on the phone and somebody says, "Well, you're just a lawyer, and I'm now too old, and I just brush everything off and up.

But if somebody says that I'm just a lawyer. I run a much larger business than you. All right. What's your, what's your overhead? What's the AR you're dealing with? How are you managing several hundred people? Right? Failing meant that we would be lawyers, right?

In the pejorative way.t? That all we did was tell the clients, well, this, you can't do this. You can't do this. 

Michael Baum: Here's the risk. You decide. We don't; that's not lawyering to us. 

Michael Fishman: If I was going to rebrand our practice, it's not; we're consiglieres. Okay. Old school, Tom Hagen, consigliere, right? Yeah.

We get, it's, the deals are consolation prizes. We get the phone call at three in the morning. Sometimes, right? I'm getting the worst. Sometimes, I'm getting a business divorce. My kid got wasted at school. Help. Okay. Right. Like Michael Clayton. 

Michael Baum: I can't make payroll. 

Michael Fishman: I can't make payroll help.

Michael Baum: Those are the calls that we expect to get.

Chris Powers: But why would you call your lawyer and say that? 

Michael Baum: Because who else would you trust in that situation? 

Chris Powers: I don't know. I've never had to make that call. Is it more of a call, like helping me make the payroll, or what do I tell the team or do?

Like, take that one example. What would you tell someone who can't make payroll? 

Michael Fishman: So it goes, it's always emotional IQ. Right, all right, let's talk. Why do we get here? Right. Why are we in this situation? What decisions have led you to this point? Right. One, relax. We all know you want to avoid making big decisions when stressed.

We're here to help you, right? We're going to pay it forward. Don't worry about the bill for a moment. For years, you paid us a lot on the other end of us. We'll get you through it, and you'll pay us a lot again, right? Let's step back, right? And think about why we're here. Right. And how can we get out of it?

It is precisely the correct talk about what we've been doing for 18 months.

Michael Baum: And you asked the question of why us? The answer is that we have a legal background. So sure, to the extent that whatever that issue is, whether it's payroll, a divorce, or a kid getting in trouble, we certainly know how to work the legal system to ensure we're navigating that properly.

But as you mentioned a minute ago, if that's all we were, you're right; we wouldn't get that call because you can call anyone to do that. And that's different than the high-level decision-making of what's next. How are we going to handle this from a different perspective? What is the impact on my business?

What's the impact on my family? What's the impact on all of my joint venture partners? What's the impact on our lenders? How will you manage this issue as a business owner? It is what all our clients are. We represent many institutions, but most of our practice is risk-takers like you, right?

You're running a business, and their families depend on you. When you're making decisions about handling all those issues, if we don't have a sound vision of how we run our business and all the families we're responsible for, then we can't advise you to do it; do it your way.

Michael Fishman: And I like to, and sometimes you say, well, why? He's been doing it for 20 years. I've been doing it for 30 years. I've made an awful lot of mistakes. I've seen a lot of people make an awful lot of mistakes. So, sitting here, it's the one great thing about being 55: when you're 55, you're in your prime.

You made enough mistakes. You're confident. You can say, well, I'm seeing all this. And don't make the same mistakes when that we made, right? And don't make the same mistakes your peers made because of the situation. The proverbial client in this fact pattern is not the first time, right?

Tom Wolfe wrote a book about it, right? A man in full, okay. Which is mine; actually, it just came out on Netflix. I have yet to watch it, but I can't wait to see if you. 

Chris Powers: I have yet to watch it.

Michael Fishman: You read the book. 

Chris Powers: No.

Michael Fishman: I don't want to steal the whole thing. 

Chris Powers: We'll put it in the show notes. 

Michael Fishman: The main character, okay, is this larger-than-life Georgia real estate guy who flies his g5 to go 20 minutes. Right? Yeah, one of those guys. And he always thinks he can convince anybody to do anything. And he gets up, ends up in default and anything. He goes to the bank to talk to his relationship manager and the relationship managers. Sorry, I'm not in charge anymore.

And you meet the main bad guy, the main antagonist slash protagonist, whose nickname is Old Saddlebags. Old Saddlebag's job is to take the eagle maniac real estate developer and make him sweat so severely that the sweat under your armpits gets to here. So anytime there's trouble, they're like, well, read a man in full. We want to ensure you don't get an old saddlebag. The point is to give them the benefit of the doubt: Look, we've all been here, and if we haven't, don't beat yourself up.

Michael Baum: Right? And if we haven't been there, certainly more likely than not that we've seen it. Given the relationships we forged over the last 20 or 30 years, the risk we've taken with them, and the risk they've taken with us, here's our mafia back at play.

We, our team, and our clients take care of each other to ensure that. Again, you never know who's coming, who's going, who's succeeding, and who's failing. Ultimately, if people are generally selfless and come together through us, they'll help each other.

Michael Fishman: And a little segue to it because we've always realized that we changed it to competitive lawyers, right? All of us were competitive in high school. We were all wired a certain way if we were in this business, right? So there's a lot of alpha in the room.

And so with lawyers, you often get on the other side with a lawyer, and they become your adversary, which makes no sense. And I'd say to Mike at some point, right? Clients are like cheese. They get old. Sorry, clients. I know I love you all, right? However, the lawyers and professionals you develop relationships with on the other side are golden relationships.

Truly one of the things that we've done better than most people. When we pitch, we're like, guys, you can hire us or not. Like, we don't need the work. Right. But so why should I hire you? And often Michael says, all right, talk to somebody. Well, because you're not relevant to the client,

I'm like, what do you mean? You're not relevant. I'm not relevant. We're on the other side of the 15 law firms that do this business a hundred times a year. Sometimes, we have leverage. Sometimes we don't. But the lawyer on the other side always knows, Hey, if you're going to jam me, guess what? Tomorrow, I'm going to jam you, man.

So how about we're all fair? So even those relationships are just relationships among the clients and the pool. It's saying, Oh, what's the problem? And I'm telling you, this has happened, right? And sponsors get in trouble. Who are the lenders, right? Who are the LPs? I know their lawyer.

I'll call them. Right. Don't worry. We got it. 

Michael Baum: These are good people. 

Michael Fishman: These are good people to take care of. Let's figure out a good solution here. As you said, they're in the mafia and fish mom's world, right? Like, it's fish at some point.

Chris Powers: Is it fair that most situations could be dealt with without massive litigation? If people would get, let their ego go away. 

Michael Baum: It's such a tricky question. And the answer is yes because litigation should always be the last result. Right. We deal with it when it gets that far, but our goal is always to avoid it because then you're putting your, you're putting it and not putting aside the emotional cost and the financial cost, you're putting it at the hands of someone else to dissect your fate. 

 Michael Fishman: So you exact, so you say when people call up and say, all right, you want to fight. What do you want to fight? What's the order of magnitude? So the first thing you say, it's under a million bucks. What do you think you're going to spend?

Right? You say, are there other facts in dispute? Oh yeah. But that did, I go, but you realize you have to prove that. So that's going to cost you a million dollars. On top of that, you will be called in. Have you ever been in a deposition? Right? No. Okay. Well, have you ever been in court? No. It's going to take up and consume your life.

And it's going to cost you money. And as Michael was saying, here's the reality. And we even think about this. If you get into a dispute, right, and you can't solve it, in addition to spending money and taking up your time, who's arbitrating this? I put it in quotes. Okay. It's either a judge, which is our problem.

It is a substantive thing. Our preferred means if you get there because the judge doesn't want to deal with entitled rich people. They have people with real problems. So the judge will say, get off my docket and settle your petulant childish fights, right? Because usually, that's what they are. But lawyers often, and nobody pays attention to it, throw arbitration clauses.

Michael Baum: And ultimately, when you admit all of that, of course, with most disputes, the truth Generally lies somewhere in the middle. So, winning is a very relative term in arbitration.

Michael Fishman: So we often say we're here to settle it. And if you want to get a litigator, that's great, but that's not our purpose. Step back and think about what you're. Are you prepared to do this?

So, it ultimately has to be a bet. The bank thing is that the business is going to go down. I've been wronged, and I'm not dealing with a rational counterparty. My business is going so absent that I am trying to remember the last time we counselled a client to sue someone, even during these challenging times.

Chris Powers: That was my question. It probably isn't suitable for legal fees, but the number of times the verdict or where you end up is what you told them on the first phone call would happen.

Michael Baum: Rarely. And you're right; I cannot think of a single instance.

No matter how bad their counterparty was, how wrongly they picked their partner, or how wrong they were, our initial instinct was to never.

Chris Powers: Well, no, my question is, you probably tell him, look, I wouldn't do this. It is going to be the result. And they're like, no, we're going after it.

And then two years later, it's like, okay, this was the result. 

Michael Fishman: This is never the case because another thing is people are writing documents. You're dealing with very bright people with fancy education, and they need to remember who's interpreting the doc. It's a judge and their clerk. Right.

They're not us. It's even our vocabulary. Right. It would help if you didn't think of it in the audience. I catch myself because we have our real estate vocabulary, right? And people need to find out if you're not living it; it's a different language. 

Chris Powers: Why did you all decide to go to Greenberg?

After the dynamic duo got together, you probably discussed starting your deal or firm. 

Michael Fishman: We started, well, we had many different ideas, which is a great segue, Chris. We were going to be private equity guys. We built a hotel in Slovakia, Michael, which failed miserably.

Chris Powers: In Slovakia?

Michael Baum: Yes. The second largest or the second most visited tourist site in Slovakia. It was a cave complex. We were partners with the son of the defence minister, who had negotiated Slovakia's entrance into NATO. It was pretty good. We thought it was a form of a business plan.

Perform a great. We raised money. We spent weeks in Slovakia building a tourist hotel, which was three and a half stars, four stars by Slovakian standards. I don't know if you would stay there, Chris, but it was in the parking lot of the second-largest UNESCO world-renowned heritage site. It was super cool, right?

It was amazing. The hotel was open for a day, and then the financial crisis hit, and it was gone. 

Chris Powers: And you all weren't at Greenberg then. 

Michael Baum: No, we weren't; that was our night job. 

Michael Fishman: So, coming to Greenberg, right? So, so we're, Michael was very young.

And I'll digress on the lessons in a minute, and we'll talk about the lessons because there were just so many great stories. So, I was up for a year to make a partner. And as I said, the part, we would only be where we were if we were put through the crucible. Okay. Like there was no suffering.

You can't; you just the stories you can't make up, but there's one story. I won't mention names because I don't want to. That one of the department's leaders is tall, right? I'm Jewish, tall, five-eight, right? Especially with my cowboy, I wear my kickers.

Five, nine and a half, five, 10. Now it's feeling good. And so he had furniture for about six, six people, right? So you go in and visit him for 15 minutes, honestly. And we said this is now us. And we're thinking, you imagine we make somebody make an appointment to see us for 15 minutes, and you walk into his office.

You can't see here, but the chairs were first, so I was like a lily pew. I'm a lily pew, and I'm like, couldn't touch the ground, and you'd have to be, and he looks at me dead in the eye, and he says, we were talking because it was like the year getting put up for partner.

And in the history of Mayor Brown and Plant's real estate department, we've never had an associate with more God-given real estate ability, business generating development. I had a few million dollars in it, but anybody with that much personality can't be that smart. And we won't make any empty suits partners.

They'll offer Mayor, Brown and Platt like that with the finger, right? I'm barely covering my mortgage. I have one kid and another bun in the oven, and I'm about, and I had a temper back then. And I'm ready to leap across the table. And remember, I do martial arts, right? 

Michael Baum: We won't stray. 

Michael Fishman: And kill this guy, but I can't because I can't pay my bills if I quit. Right. So I worked till three in the morning like I did every day. I come home; I get up with the baby. I see my wife. She's like, I'm an empty suit. Right. And I'm like, I'm leaving. I'm gone. And she's like, no, you're not leaving. Right. Make partner. Right. And then take all their clients and leave.

Okay. It was that moment. Right. And so I go to Bomber, we're not here. Right. It is wild. And I do have a tally, and I'm old, and look, these guys were fantastic, but there's a number. Okay. And you wouldn't believe the size of the number. Okay. But it's a significant number. And we just realized that we didn't fit now.

Chris Powers: So we call all the law firms for the draft. 

Michael Fishman: We had yet to learn. 

Michael Baum: We were not qualified to make the decision based upon.

Chris Powers: You were just a Spanish speaker. 

Michael Fishman: He was a Spanish speaker with a fall-back plan.

Michael Baum: I questioned whether I would still be in the business. I found a great partner in crime, but at 27 years old, I had yet to determine whether I was long for this business.

Yep. Still waiting. Still waiting. 

Michael Fishman: We get the head-hunters. Okay. And we're in most; we represented a big bank that went BK. We represented a prominent developer. 

Chris Powers: Is it good that you represented a big bank? 

Michael Fishman: I fired them. It's another story. Okay. Very crazy fisherman story, brilliant.

Michael Baum: And yes, it was a great recurring revenue client that taught us much about real estate and what to do and what not to do. 

Michael Fishman: Mez loans, inter-creditors, the whole thing, right? It was a fascinating time. So we were, where are we going to go? Right. And we felt we needed to be in a place where they'd got.

We can continue to grow this cross-border practice because this is the first time anyone else has done so. It was our niche. 

Michael Baum: I mean, even like the big one, it just became our way of becoming the guys people counted on doing deals across the border to the South. 

Michael Fishman: In fact, people thought we lived in Mexico. Remember we were at the Walton. The event is at the golf course. Where do you guys live? Mexico City? We're like, no, Highland Park. Right.

Michael Baum: And so, yes, that's stuff. That is correct, but it was the most significant hedge of all time because you're thinking about how we were building our business as the world was heading toward the Great Recession. 

Michael Fishman: You remember there was that. What was the word they used? 

Michael Baum: Although this is before I'm jumping. It is 2000, but yeah, four, so right.

Michael Fishman: So, wait to see how that hedge worked. Got. So we're like, well, where are we going to go? 

Chris Powers: So in 04, you said out we're leaving.

Michael Fishman: We're leaving right at the end of 04. We're like, we're going. Okay. And we're like, somebody called up about Greenberg Char. We were at Mayor Brown, and at that time, we were Mayor Brown Snobs. If you didn't work at Kirkland or City, something must be fixed with you. Like we, you know. We won't talk to you.

And that's how we were trained. Right? Like you're, there's something presumptively wrong with you. Right? Like Greenberg, Fryer, fly by night, Miami law firm, but Hey, they're from Miami. We can do the Mexico thing because they speak Spanish. Same, same stupid thing.

Michael Baum: We should have done our homework.

Michael Fishman: Yeah, we need to do our homework.

Michael Baum: Young, naive kids trying to take on the world. 

Michael Fishman: And they were, we had, we own Florida, and we still do. We had the most prolific real estate practice in New York or one of the two. And they were starting to build things in Chicago. Now, it turned out that the two guys that had come before us were a firm called Alzheimer and Grey, right?

My little brother, who now runs our LA office, Okay. You know that, right? 

Chris Powers: There's no nepotism. 

Michael Fishman: No nepotism. 

Michael Baum: We are brothers because we share a brain. His real brother is our third brother and lives in LA. 

Michael Fishman: And he calls us the perfects because we always agree. He doesn't always agree.

Chris Powers: You all's chemistry is a class act; it is world-class.

Michael Baum: It's great. Never said, we say a mean word to each other. 

Michael Fishman: Yeah. It's been about 10 years. Yeah. 

Chris Powers: Since you said a mean word to each other. What did you say?  

Michael Fishman: I know what it was, but it was when you were still young, cocky bomb.

We call it. You go on vacation with his parents, stay in a fancy place, and he returns and owns the place. Like now, man, get back to work. You don't own the place. Right. Yeah. So why did we pick Greenberg? Because they spoke Spanish. Right. And they had us at the time meet some of our friends from LA who had all this practice, and we show up and like, Hey, we need help.

I didn't answer the phone. Okay. And then we realized because we were at Mayor, like we had all these resources, right? 

Michael Baum: The night staff, the meals, the whole thing. 

Michael Fishman: Right. The tax and risks of specialists. Right. And we're like, one day we had a big deal, and we're like, Hey, the lights go off at five.

Right. We get guys. You have to turn the lights on to turn them on. We need help, right? We need due diligence. And the office manager sells and sends the two kitchen ladies down, right? We're like, no, we need lawyers. Right. So, this is the most well-run big law firm.

Now, we drink our own Kool-Aid. When you talk about it, we didn't know what we were doing, but they let us write our partners, experiment, and build what we were building. And it is so well run as a financial institution. We can discuss why we're not here to promote the firm.

Every time there's a downturn in the cycle because the balance sheet's so clean, we up the bench. And so, 20 years later, we developed the brand, right? And we were there—it was undoubtedly in Chicago at the beginning—so we were building something. 

Michael Baum: And as importantly, as we think about a lot of it, you look back, and you realize the opportunities that we had and the way that, the way that they did things that were just fundamentally different than the things that bothered us.

And now, again, I was super young. I was along for the ride, and at 27 years old, I didn't think I'd be even; I was surprised I was still in the business. But at that point, we had developed such a relationship. I was like, and I'll take a chance. So we went over together. But you think about how they allowed us to be us, and they allowed us to grow the practice to him, for him to empower a 27-year-old to grow the practice together and to create this, the infancy stages of the selfless partnership is something that most law firms would never tolerate.

Right? There's a hierarchy system. It's that you move forward through the ranks as you grow more senior and get more responsibility. And until then, you're implicitly not trusted, right? Because lawyers all believe that they know more than the next guy because they're a year older or they went to a fancier law school, whatever that may be.

Right? So GT, when you think about how they mentor and empower and how they manage only the people who need to be managed, it allows, we say, an adult law firm. It's how they empower people to build their practices and do it their way, which we'll talk about a little bit about how we built ours within that framework.

It's incredibly liberating and creates a society where you can create your own thing within that framework. And you, the sky's the limit.

Michael Fishman: As long as you live by, at the end of the day, what I call cowboy ethic. 

Chris Powers: What is a cowboy ethic?

Michael Fishman: My word is my bond. My hand shakes my contract. Honour and integrity are two things money can't buy. 

Chris Powers: The irony of that in a law firm is funny. 

Michael Fishman: But not us. And that comes from the top. You can play a dating game and ask your wives about it. Who are you too afraid of? Nobody except each wife and Richard Rosenbaum, the boss, because he earned it.

Because he is the leader, and he runs it that way. It's old school. Right. The firm is a family. We take care of the family. We take care of each other. Period. Right. We might disagree. Right. And we might disagree a ton behind closed doors, but forward-facing, we're fully united. 

Michael Baum: And going back to the question of how you fail and what you envision success again, maybe it was lucky, maybe it was the right place, right time.

We met and landed here. But when we think about our relationship and what we built together, we see that the firm is the same: a family. It is a partnership. We do care about each other. We all believe that the practice of law is lonely and boring.

In a vacuum, you do it by paying it forward, empowering the next generation, empowering your partners, and doing it together. We have way more fun with each other's and our team's success than our own. And that's just the way the firm operates. 

Michael Fishman: And so if you think about how we started because we were incubating, what we were doing was saying, well, when I was older, I had strayed quickly.

For the first five years, I worked at an excellent firm called Baker Hostetler. And Baker Hostetler, I learned how to treat people, right? And Mayor, I learned how to be a hell of a lawyer, right? And you take the two and suddenly have a pretty good cocktail. And so this was the, he was the guinea pig.

So, the first thing I did was that we would be 50-50 partners. We're not there yet, right? But I will do everything possible to ensure you make more than the average associate because you're better. Right? It is hard because he became a little untitled sometimes when we fought, to the point where I wrote a check one year, and I had weeks to build it all on my own.

I didn't have much money, and I wrote a check out of my pocket, right? I didn't call the firm and say to pay him. I knew right that this guy was the key to my future and success, right? And whatever I was giving him, maybe when he wasn't ready, life sucks because I'm getting old, he was going to take care of me on the backend.

But we always just said, look, we're going to be selfless. We're going to help each other. It's cool to say I'm a prominent, giant lawyer with a book. What's even more incredible? I made that guy, right? Right. And then he made the next one and the next. 

Michael Baum: We have 12 people on our team making seven figures a year.

Right, so when you think about that and what they've created for their families and the practice that we've built, we do whatever we possibly can to not make it about us, to make it about the team, to make it about the clients, to make it about the family. That's what we've created. That's very different from most lawyers who think about the practice, their practice, and their clients.

Michael Fishman: And they're rendering up renting space. Right. In a big organization, because it's all about that. 

Chris Powers: What was the size? So when you started, what was it, two of you all? And now, how would you define where you are 20 years later? Like size-wise, team.

Michael Baum: Well, in terms of the global team, right?

So, when we run the global real estate department of GT, we have 650 dedicated real estate lawyers worldwide. So 650 dedicated real estate lawyers, but we say all the time more because it's the DNA of the firm and it's the DNA of how we think about it and it's, and it's our absolute brand again, sometimes better lucky than good.

The brand was created in real estate before our time, and some folks came before us. Richard Rosenbaum, Rob Ivanhoe, and Mac Orson created the best-in-class brand by far. So, allowing us to take advantage of that, we still take advantage of it. But when we think about the...

Chris Powers: Ride that train as long as you can.

Michael Baum: As long as we can, when you think about GT, there are 2,500 lawyers worldwide.

We joke about it because whether we're intentionally annexing people into the real estate department, whether they like it or not, or whether it's, we're on the way to our industry group conference, which we've separated into four groups. So, we have our industry group meeting tomorrow in Austin, and we are thinking about it.

All these industry groups, in some way, shape, or form, whether automotive, digital infrastructure or energy, touch real estate and real estate is this wealth management. It's the centre of our universe at GT. We are the last large firm that believes that, right? Many other firms have gone a different direction regarding private equity or bet the bank litigation, higher rates, more profitability, and that type of desire.

Ours is still the middle market. It is still real estate, and it is still our brand. And that's who we are, right? That's what we're good at. That's who our clients are. And that's what the rest of our firm revolves around. 

Michael Fishman: And we put our money where our mouth is. And I'm not making it about me.

I was just the oldest. We did it, and we made it an exam. So when we first started, we had four or five clients. One, right? I fired them because they were miserable. Thank goodness. They went bankrupt the following year. It's not the dumbest move in the history of the world since we then had two clients, right? Yeah. So the three, I call them up, they go, I fired him. He's like, what? I couldn't take him anymore. Right. It was a little young, but one of our biggest clients we didn't fire was a private equity shop in Chicago. And Michael and I sat down with him right when we started working. And a contemporary of mine ended up being a big shot in Blackstone and his number two.

And I looked at Mike, and I went, all right, my job is to be his friend. Your job is to be the junior's friend. Right. And they hit it off. And I, at some point.

Michael Baum: To this day, he is one of my best friends.

Michael Fishman: Mike, you take that client. We could have 6 million dollars in business, and that was three. I said that's your client. I'll find another one.

Okay. So right there, not only was I trusting him, right? Back in the day, like, Oh, a fish man didn't have a book anymore. Right. What happened? Right. And he's a troublemaker in hindsight. And the kid got the work right. And the kid isn't a troublemaker, right? Right. He's more political than me.

Right and polished. And so, we always set that example and tell people, guess what? Right. Next man down the line, next person down. Right. All right. Baum's going to give you the next client. And we started doing it. Right. Look, you got to earn it. And there's only one thing worse than losing your client: losing the client that somebody else gave you.

And when you say give it to you, even there, that emotional IQ, not everybody's a born salesman, right? Josh Hers, right? Our sponsor, Associated Agencies, is a born salesman. He's a born salesman. Right. He can sell ice Tascam’s. Lots of lawyers. Right. Who are lawyers? They're the ones who took the tests in high school.

Michael Baum: When the rest of us were in the front of the room with those who hadn't studied, right? 

Michael Fishman: I never went to class. Right. I graduated embarrassingly with 2. 1 in high school in 70 hours of AP credit. I started Ohio State as a sophomore. What does that tell you? I was immature and not interested.

The lawyers were all taking classes, right? Right. We're saying, what? You're an outstanding student and intellectual when you understand the document. You could have a better personality but can steward a considerable relationship. You can have a meaningful role and not have to be a quote-unquote second-class citizen because you're not Michael Bond, the Rainmaker.

So right. The army needs cooks, right? The army needs brigadier generals, right? Not everyone's general Marshall, right? Only some people's patents, right? But it would help if you still had other people. And so we build that out. 

Michael Baum: That's right. And if you empower people to do. That makes sense. That was our model. You empower people to do what they're good at. Then the team succeeds, and we all succeed together.

Chris Powers: Okay. I have to ask the elephant in the room a law-related question. How are you all thinking about AI? 

Michael Baum: It is necessary to incorporate it into our practice. Okay. Right. 

Chris Powers: How would you think about that? 

Michael Baum: Well, there are a few low-hanging pieces of fruit in it, right?

There's the document review. Feed it with the proper information. It will help you become more efficient at drafting documents because it will tell you this is what you're marking up in section 6. 4. It's the provision on the waterfall or the major decision of the voting. You always work on that.

Always working on the waterfall. It will tell you, I will tell you when you're steering away from where you should be, right? It has that history, and it's not just living in your brain, right? And you get the benefit of what all your partners do in theory with the markets.

Right. Is it needed and supplementary to what we're doing? Yes. Am I convinced that it eliminates the need for all the other things? The relationships, the EQ.

Michael Fishman: We have a slight, well, I'm a Luddite. The older I get, the more and more of a Luddite. I see few good things in technology besides what you can do if you have to; you can be at home and get your job.

That's the one flexibility. You can go on vacation, have your phone, and not be tied to a desk. It is a less critical supplement because this is a people's business, which is correct. Will you ever outsource your medical or legal issues to a robot? Okay. Good luck.

Chris Powers: And how would that even stand up in court? 

Michael Fishman: Well, I'm not even thinking in litigation, just generally speaking. So where, where I, where I did not answer your question, but we always say to people, you always keep the client because you made a mistake because we're humans, right? We make mistakes.

And often, when you start a transaction, people create a first impression. And that first impression lasts. So what do people always screw up, right? They start the deal. They have a loan or a transaction. They need to get their closing binders together. In the middle, you're like, Hey, send me all this stuff.

So I could, and it's incomplete. What happens, right? Somebody calls him, and then he calls the classic. These guys are jokers, right? We can't trust them. Right? Your stuff's messed up, right? We got to do our homework. We got to spend more money. If you're using the AI to organize, right? And it's sticky, right?

Here's your closing binder, right? We have all of it, right? Here are all the links to all the stuff. It is what we did. Remember three years ago when we bought the deal? Flip it around instead of people saying, where is it in the system? Or I need help remembering. So those two things I would say. Are the places where it will grow.

It will probably be more problematic for younger lawyers because of all the other hurdles they have to deal with in the world today. I don't see it replacing Michael Baum.

Michael Baum: But that is the disruptive part because at its core, our business, and that's part of the reason why most firms, most in the legal business struggle during COVID in the work-from-home phases, because our business at its core is an apprenticeship business, right?

The only way to learn to have the personality and experience and take the risk that you want your clients to help them take and make sure what they are jumping into and whether they should be taking based on their collective experiences is through experience. You don’t learn it in law school, and you don’t learn it before law school. For sure, we are all victims of our experiences.

Michael Fishman: It will get easier once you start studying. I need to learn how to do this. It's going to go through the process. But when Michael started to work with me, right, he'd come in, he'd come in, and he'd sit down. The first thing he'd do, cause law students, young, I start talking, he starts taking notes, right?

Am I giving you a test? Why are you taking notes? Right? Listen, I don't want you to listen, right? Right. And then I say, give it to him first. Right. I mean, now it's wild because he is faithful; he's my most excellent, my best; he is the world's most prominent real estate lawyer. Right. And I had something to do with Right.

But the point was when he was angling for his residuals forever. We had already signed, and he got signed.

Michael Fishman: We signed that. Signed. 

Chris Powers: I'm angling for my little pieces. You can have. I want to get, well, I want your job. 

Michael Fishman: You want to come practice? I'll do the podcast.

Michael Baum: So that's funny. 

Michael Fishman: He and I would, we, I'd say. And he writes something up and then hands it to me, okay? And I would take a marker. And there'd be like one word, correct, that I accepted. And I'd usually take like a pencil, remember, because we'd have the drywall, and I'd smash it into his wall, and I'd take, and I'd write, think, try again, try again, think, right?

The whole point was, Mikey, what's the story we're telling? Refrain from getting into writing the document. What is our goal? Right? What are we thinking about? So think about it.

Michael Baum: It’s the audience.

Michael Fishman: Who can you do that with Zoom? Right? You can't. First, I'm going to have a shorter attention span. 

Michael Baum: So what's scary about AI is, scary, or defining about where this is going, is that there's no doubt that there are specific tasks that we learned.

We joke about it, but I've learned I did closing binders and signature pages in my first year at Mayor Brown in the securitization department. That was so good at those footers at the bottom of the document because, at the end of the day, if you made sure that the version numbers were not there, then no one could say that that wasn't the final version because sometimes it was version 16, and sometimes it was balanced.

Version 17, and it was scary if page 17 had version 16, but the signature page had version 18. It could be clearer whether they signed the correct document or if that ever came in. But the chain of custody. So good at those photos. But I will tell you that when someone hands me a document before I look at anything.

Or if, and or I used to stand with a, remember the little cabinets used to come out with a little drawer. And we had a night service. And the partner that I worked for in the securitization department used to mark up asset purchase agreements with a pencil.

One hundred fifty page documents with a pencil. I used to sit in my office from 8 to 5, hoping to listen to a conference call. Only had a little work to do. And like clockwork, at 5. 30 PM, he would hand me a 150-page document that he had marked up with a pencil. And I had two options, right?

I either typed them in myself or handed them to the night staff. I would have dinner, maybe a glass of wine, return at midnight, read every word, and make sure they were right. But that's the kind of stuff that when someone hands me a document now if there is one typo on that page, I don't even read it because it jumps off the page.

In the lesson, it is always to the extent that. Your work product is not excellent, and there's a typo in line four, and that's as far as you've gotten, and something's spelt wrong, or there's a comma in the wrong place; the rest of the document is not as substantively strong as you would want it to be because now you've been discredited by your work product, right?

So AI is going to solve those little things that you learn, and it's going to create something other than the apprenticeship and those learning experiences that you'd need in this business because we need a widget. We're not selling an iPhone. Right. We're selling our experiences.

We're selling our relationship, judgment, and relationship, and you get it with reps. 

Chris Powers: That's such a good point. The reps are going to be taken. I mean, so much of any business. I remember my business as if you learned by being in the dirt, as if the dirt is where you learn many things.

And if the dirt is becoming AI, you skip a whole part of your career, correct? 

Michael Baum: Can't skip to the punchline. Can only delegate until you can do it. 

Chris Powers: Are young people wanting to be lawyers right now? Is the pipeline entire?

Michael Fishman: Look, we're very, I think, the pipeline. Can I answer it differently? 

Chris Powers: You can answer it however you want.

Michael Fishman: Cause it's a big country, right? If you asked us, I'd be grouchy Archie Bunker now. Every generation is like, oh, the rotten kids, what happened to them? I think they're rotten kids. Right. Not mine. They're Americans. They were raised well. You don't have to get rid of that.

Right. But it would help if you had people. And it's, no, I don't want you to, it's, there's this sense of entitlement, okay? That is, you see it everywhere, right? You can take it to the extremes with things we see in the news or even in law firms where you're; you should. I remember when I got my first job.

I was so happy to be; it was, I was learning. I felt like I had to pay them. People still want to be lawyers but don't understand what it means to be a lawyer in the most fundamental way. I was blessed. My dad is a lawyer. And he's an old-school lawyer. And he said, look, we have a higher calling.

We swore to defend the Constitution. He put that into us like we were lawyers. Your lawyer can't be a yes man, and you are responsible right for other people. And our experience is that it used to be people who understood that when they came in, right? And even more than that, you knew when you'd be in a big law firm, you'd have a new class; everybody wanted to be him.

Now you got to find somebody who wants to be him. So you're lowering the bar. Because, oh my goodness, somebody wants to learn and put in all the hard work to be the boss. It's. I'm going to mail it. Oh, I'm going on vacation. I'm going to try something else. And so it sometimes becomes disheartening because you think about the investment that you make.

I'm not even talking about the monetary investment, the time and energy. And so you have to be resilient because it can get you down. After all, it's just not like it was. And I have a theory about that. Digress. When I was coming up right, I was 55. So, who ran the world? The World War II Generals.

Right. The greatest generation was still in charge. Okay. Can you imagine going to your boss and saying, no, I'm not happy about this or working too hard? When I was your age, I had a rifle, and I was getting shot at? Right. Good luck, junior, right? You wouldn't even say it. We all have grandfathers.

Okay. I know what you were doing. And then, at that same time, and my generation was proper, all the emails came up. So the game was Thursday night, FedEx, right? And if you got the FedEx out at midnight, your weekend was fantastic. Then it became Saturday FedEx. Then the blackberries came, and suddenly you had a 24-7 cycle at the same time; the World War two guys were still running the world, which means our, my generation of lawyers worked harder than anyone because we were subject to the old school work standard, but we were on a digital economy.

And most of us got burned out. Big time COVID. I think if we were all honest and had extensive therapy, we'd say, well, it rejuvenated, certainly rejuvenated me, but so when you have that mindset and though that generation of the leaders of big law firms, it's tough to look at the new generation, right?

Who one isn't willing to put in work, and two, we can't treat them the way we were treated. Right. It's not mean stuff like guys throwing books at me.

Chris Powers: You got books anymore. 

Michael Fishman: Yeah, I still got.

Michael Baum: Every once in a while, because that makes sense. You still have them on your bookshelves, but we don't look at the world.

Chris Powers: You keep the books just for throwing purposes. 

Michael Baum: No, they're nice to have. 

Michael Fishman: Does that answer your question?

Chris Powers: No, you did.

Michael Baum: And the answer is that there's definitely a pipeline, and the law schools are total, right? People are going to school. But then, you couple the work ethic piece with the fact that the law business has changed significantly, right?

Rates are super high, right? Expectations are super high, right? It's a constant. A constant push to get everything done immediately, right? What have you done for me lately? When is it? How are you going to get that done? So you combine those two things, and it creates a, He's right there. It is much more work to find folks with that work ethic and desire to do what it takes to get to the next level.

So there's no question that it's few and far between to see people succeed, continuing to succeed. 

Chris Powers: All right, let's bring it home on what's going on. We discussed earlier, and I was like, Hey, you all are leading indicators. You might collect as a lagging indicator, but you probably start hearing of what's going on in the market.

At the very least, you start papering up LOIs, or you're papering up transactions. Let's talk about the real estate market from your view. More like the question is, what's happening? Are people starting to go into foreclosure? Are people starting to buy stuff? Where is your work coming from today, May 8th of 2024?

Michael Baum: So the answer to that question is very anecdotal. As we look, we are leading indicators because people come to us, and we see a lot. And you nailed it; our business is a lagging indicator. 

Chris Powers: Yeah. Or you're seeing people starting to raise funds or bank. I mean, you're just seeing people talking or beginning to make moves.

Michael Baum: So there's no question. Real estate remains an institutional quality asset with a lot of money chasing, and people want to have it in their portfolios. No question, right? I also believe that where we sit today and again, it is impossible to predict the future, especially for lawyers; I'm going to claim we're just lawyers for a minute to be held to a different standard than actually knowing what we're doing. Right? But when we look at what's going on, there's no question there's been an erosion of value in office, right? Whether that was something coming anyway, or something accelerated through the last three or four years of how we use office and what's going on with technology and work from home and all those other things that we're tired of talking about.

There's no question that office values are down, right? That said, because the bank's banking system and the private equity world are still relatively healthy and real estate, being one of the most capital-intensive businesses, is feeling it the hardest that the interest rates went higher, faster than anyone expected it to do.

Right, we joke about the end of 2022 when we were. We had 40 clients in Ireland, and we all still felt perfect because inflation was transient, right? It is August and September. 

Michael Fishman: And nobody had spent any money. 

Michael Baum: And we had all gotten all this free money from the government. Everyone thought they were wealthy and inflation was transient.

Right? Fast forward 12 months from now, interest rates are up 500 basis points, and a typical real estate asset is leveraged 50, 60, 70, and 80% correct. And so all of a sudden, it doesn't work anymore. But the fundamentals in real estate still work because the economy is still plugging, right?

Cause businesses are still doing well. The government keeps asset values relatively high, whether chip manufacturing, infrastructure, or whatever. We're not seeing. The mass chaos and the run toward distress that people continue to wait for, and we're not 100 per cent sure it ever gets there.

So what are we seeing? We're seeing certain asset classes continue to thrive. Student housing, self-storage, and shoring industrial in the right marketplaces are sure. Building boxes all over creation and hoping that clients come may or may not be the right thing. But data centres, digital infrastructure, and all that stuff still drive significant real estate values, and they allow the other ones. Such ones may be struggling with the office; we'll call it to work themselves through in a much more logical way that it's not a run in the bank. 

Michael Fishman: So, for us, if you use us as a microcosm because we're blessed to have an extensive, large practice. So we see a lot. We are a data set. It's a pretty good data set because because we're seeing it.

All over the world. And so Michael's right, specific sectors are doing better than others, right? Let's put the office aside for just one. One of the things that's a real challenge is that we discussed this before the meeting. It's tough for clients, particularly those who have yet to go through a natural cycle. Is that suitable?

Cause most of them were pretty young in 08. And I've always said I'm a history guy. It is not the 08 recession. It is the 1990-91 SNL crisis. Rates are going up, right? Rates are not going down. Inflation is going up, right? It was then, obviously, that it went way up here.

There are different reasons. And so it's much harder to get what you're out of it. Because you can't just drop rates and cap rates, compress, and say, Hey, I'm going to refi out and make money. At the same time, is a suitable coupon clip suitable for people in the multi-space?

Cash-flowing asset. People are used to getting eight, nine, and ten per cent coupon clips. Now, the carry and insurance costs go up. However, associated agencies try hard to keep them down a third time. And so they're stuck, right? On the one hand, their egos are attached to their deals.

They want to refrain from writing, not hitting the returns, getting fees off the deals, and keeping the lights on. And so they need help unlocking it. They say we've had conversations with clients. Hey, is it worth part? Yeah, sell it, take the money. All the investors will be happy not to put more money into our okay deals. Let's take care of somebody else's problem. So they're finally getting to the point where they're willing to let go because they've realized maybe rates aren't going to drop, right? We all thought they would drop, but they didn't, and the employment numbers could have been better.

So everybody thinks they'll drop, but we're still in this stay-alive until 25. The other two things are, and this would be happening in my mind even if we weren't in the most volatile election cycle we've been in our lifetimes. Anytime there's a presidential election by July, everybody freezes.

Right. Why? Because you sit and say, and I'm being apolitical. If there's no change, you know what you're dealing with for the next four years, right? Like no change in Congress and no change in the executive. If it's all the Democrats, right? Everybody knows the taxes are going to go up.

There will be more regulation and every reason we could be a better time to spend money. If it's all Republican, everybody is going to say regulations are down, right? Business is going to work. And so everybody will wait to see what happens in the election. And so they're still in this holding period. Now, what's going to unleash that?

Michael Baum: I was going to say the only counterbalance to that is where we sit today. Typically, when you get to that, we'll call it the July moment when there are six months until the election; it's been a crazy time, right? People got used to it because most investments in real estate are driven by private equity, right?

Private equity is looking at their Excel spreadsheets and determining whether it works for their investors. At its core, correct? And if there's stability. They know what the interest rates and taxes are. They generally know what the government's doing and where the winds are blowing.

They can underwrite and make it work or not. But they can at least make a decision. So we're seeing folks have some clarity. The underwriting is making sense in certain things. And so the counterbalance to whether or not we're going to be in a position where there's a six-month stop is that the last three years or so have been uneasy.

So the question is whether that staleness and that desire to put money to work will force people to do more than they ordinarily would have done because they feel like they've been sitting on the sidelines. They have pent-up capital. They have yet to make money.

It has been a while since they have made money. They have to feed their AUM. They have to do it. The question is whether or not they can make it with a pencil so that they can make it work and not be as patient as they ordinarily would have been. 

Chris Powers: So, is it busy right now? 

Michael Fishman: We are swamped, but we'd like to say it's because of the diversification of our practice, right? Before I want to, what thoughts are interesting? They're sort of about whether we are busy. What's going on? Yeah, and I could be brighter. Somebody else must've thought of this, but the crisis of office is much bigger than a vacant office building, and people are going to come to the office five days a week, or they come to the office. We're in Texas.

People always did. Right. But do they only come three days a week? How are you going to make it pencil out? It's that particularly up north, right? All the goodies that people who like big government come from ad valorem real estate tax.

And even if you want to, the value of real estate will go down unless you raise the bill rates so high.

That means you'll need more money to pay for schools and infrastructure. It will lead to a question: Hey, there are better ways to raise revenue. People will start talking about a value-added tax, like in Europe, based on consumption because we can't pay for things.

If the value of a building in the Chicago Loop used to be 500 million, it's now worth the taxes. 

Chris Powers: Like zero. 

Michael Fishman: Well, taxes, plus you need enough money to pay for TI and commissions. And so that, to me, nobody has talked about. Now, the other thing I'm thinking or expecting. Assuming you can continue to have some political comedy in Washington, do you need an RTC?

You need to create a clearing house because you have somebody, a time office client before COVID, who just saw trends and did an audit of all office buildings south of 100. So, south of Harvard, all the way down to the power. Ten per cent of the office buildings in Manhattan can be converted into apartments, right?

The rest—the load bearings—is financially viable even without TIF money and everything else. So that is the real ULI conversation that nobody's talking about. It's a fascinating one.

Chris Powers: I agree. Well, it's a death spiral. You talk about those going down. Taxes need to be accrued. Areas get worse. 

Michael Fishman: Urban decline. 

Michael Baum: Which I frankly don't believe in. And so then the real question is, is that death spiral self-inflicted? Right? And there's no question that.

Chris Powers: It's a little bit because when you talk to Europeans, weren't you just in Japan? You told me Japan is 99 per cent occupied right now in their office. Europe's back in the office, Asia's back in the office. It is like an American thing. Well, it's also blue and red, well, it's that, and its entitlement is like, I'm not sitting in that office anymore. 

Michael Baum: I want to avoid sitting in traffic. I don't want to sit in traffic. I want to be home at five o'clock. I want to do all these things. No question about it.

Chris Powers: And who's to say, who knows, a recession can tend to cure things, but as you said, it's like, we're printing money like crazy. We're printing money. We're in the great depression, and unemployment's at an all-time low.

We're printing, trying to stop inflation, and having a 6 trillion infrastructure bill. So it's just weird; it's bizarre. And I tell people in the real estate, I mean, that isn't in real estate, I'm like, it's sucked for us for going on three years now or longer. And it could be another, everybody says, stay alive to 25. Stay alive to 26, maybe 27. 

Michael Fishman: It depends; as I was saying, it depends on what happened in November. 

Chris Powers: For sure. It's a red-blue thing. Red-blue matters more now. It's not even a political statement. There are guys on the podcast; Johnny listens to them, and they are brilliant.

Investors who are like, we would only put money in a blue market under any circumstance once the government has regulated itself. 

Michael Fishman: We would be investors because Michael and I have two jobs: real estate. 

Chris Powers: Are you buying some real estate, too? 

Michael Fishman: Yes. 

Michael Baum: Everyone has to have an exit straight, and in the same illegal business, it is not sellable, right? The clients own the data.

Michael Fishman: Not, we tried to securitize our brains. And not even the people on Wall Street would take it. We're getting racial opinions about the whole thing. You couldn't securitize yourself. So it's, you're exactly right. And Michael and I talked with the Cook County assessor, right?

They are an aggressive guy and believe in Taxing the business district is his point of view. He's a very bright guy. And I told him, let me at your constituency is not my constituency, right? But if we can't talk to each other, we all love Chicago. We have to make it work.

I looked at him and said, "So why has every pension fund, right? All the people that believe Fritz in all this stuff you believe in, why would they put an extensive red line through Chicago? Right. They want everything Chicago stands for but will only invest a little. How does that make any sense?

And I didn't do it to, like, do a get you. They said, think about it. I said, so, if you want to. Promote these programs. Then you must go to your constituents and say you don't get to invest all your money in Texas and Florida, where the government doesn't get in the way. And I, it was crickets, right?

So it's exciting, but you're right. And it's a red line now that could lead to opportunities. Look at Gilbert and Detroit, right? Ultimately, it gets dropped so lower, and I can make a case; by the way, let me do a good Chicago thing. I did this at that panel. If you think like a Chinese investor, right, a hundred-year horizon, there's a treaty, right?

Canada and the several states that border the Great Lakes can't export water. That's Saudi Arabia's water or the Permian basin's water. We're in Texas. That's what we'll need in the 21st century, right? And you have all the infrastructure, and it's in the middle of everything.

So, if you're on the long haul, sure, but nobody will spend any more until you fix the government problems and, more importantly, the law and order problems. 

Michael Baum: We can undoubtedly digress, but the argument is that we have a much bigger media problem than a real one.

Chris Powers: That's exactly right. 

Michael Baum: And especially in the northern states. So you comment that there is no way I would invest in Chicago. That's why values in Chicago are lower than they should be: the fundamentals are excellent. I mean, you look at the marketplace. The West Loop market is the hottest submarket in the country.

Chris Powers: My favourite spots. And I love New York City. I love Chicago. And everyone still does. And people want to live there. And I didn't say I wouldn't necessarily; I just said there's been. A gentleman who's a multi-billion dollar real estate firm. And he said, for right now, we were talking about trends. And he just said, you have to be in a red like you can't, you can't start putting dollars to work when you can't trust the government to withhold law.

Michael Baum: Correct, and to have certainty in your underwriting, correct? Because that's the other piece when you think about it. Again, going back to the same concept. You need to know where the regulations are going because you need to know which way the political wind is blowing; you can't invest in making sense, which means you can't go to the investment committee and say, this deal will pencil.

Chris Powers: So I have a question from a loss perspective. There was a situation we were in a couple of years ago where we had a case to sue a jurisdiction possibly. Because of the way that the zoning and the city council had been handled, we felt like we had been wronged, and we had an excellent law firm in town that was like, you've got a bulletproof case here, but you sue a city, and you don't win even if you win.

Michael Baum: It will take much work to do business there again. 

Chris Powers: So my question is, and again, I'm not asking for specific deals, but generally speaking, Do you have clients who want to sue the jurisdictions that they're in because they've been like how your clients who are in tough spots handle it? Is that even a thing?

Michael Baum: I don't think.

Michael Fishman: Where it comes up. It's peculiar and almost always comes up in connection with the development. 

Chris Powers: That's 100 percent.

Michael Fishman: So it's minimal, right? And it typically happens when you've gotten yourself entitled, you've gotten shovel ready. Throughout the course, you can't do it in a day because we all know how much time it takes, pre-development, and everything else.

And by the end of the cycle, a new administration's in, a new zoning director's in, and maybe they change the recs, right? Or the parking ratio, right? And every, I'm going to build it. And then they get it built, and you get. The proverbial lender's lawyer. Right. You're, you're non-compliant. Right. And so it only really, with a want to do it right, starts having a chilling effect on the ability to dispose of the asset.

So if you get someone who doesn't help, you say, okay, fine, I don't have a choice. But in our business, it's rare to see a takings case, right? Yeah, like NM of, you know. You don't see that a lot in our experience. 

Chris Powers: Are you all doing a lot of data centre work? 

Michael Baum: A lot. Yes. 

Chris Powers: What are the legal ramifications around a data centre that is not, that is, separate from an industrial building? There's the obvious: I would like to know if you sign leases. Does Microsoft sign a lease, or is it more of a contract? What are the legal ramifications? 

Michael Baum: Well, there's a few things, right? Some of them are ground leases, right? And they build their building. And some of them are Our leases, their master leases, right? So, because they can't gobble up the space fast enough. It's an arms race in the three or four providers to everyone: the Googles, the Amazons, the apples, right?

They're Googling up there, gobbling up space as fast as they can, but the key to it is water and power. So yes, these impressive buildings were built to harbour all that data. But the honest answer is that many nuclear power plants exist.

You have unlimited power sources to fund these things, make them work, keep the lights on calm, and allow them to continue running. So we're doing a lot of deals between municipalities that have bought land around their nuclear power plants, and those same providers are gobbling up land all around there to take advantage of being close to the source.

It used to be you needed to be close to the population. 

Michael Fishman: Yeah, because of the fibre connectivity lines. 

Michael Baum: But now the infrastructure and the cloud are so robust that you need to be closer to power and water to make that work. 

Chris Powers: Is there any federal legislation, just in general, not related to data centres? If a listener was listening like, Hey, you guys should, this is coming down the pipeline, something that comes to mind. 

Michael Fishman: There are some. There are no surprises in the blue states because they're on the front end of the climate stuff. You're starting to see grants and programs for like. I know there's one in Illinois, near rail hubs, near off, near airports where you want to create truck charging stations, right?

The technology needs to get there, but I need to become an expert. So you're starting to see those things. Even if you charge all these things, I always converse with people. Suppose everybody's driving a Tesla. When you plug it in, it's running on carbon.

And at the same time, it's running on carbon, right? We're building all these data centres for our 21st-century lives. Again, it's not running on wind and batteries. It's running on carbon. And now I'm giving a policy statement. Nuclear is clean. That would make sense. Plug everything into the Simpsons Power plan, right?

And it'll work, but it's efficient, recurring, and you're not having blackouts in Texas. So it's fascinating when you see the emotional side of something. When I was 11, there was a three-mile, three-mile Island, right? To think that we can't have stable nuclear power plants.

The other thing is, when you think of the long-term risk, there will be an issue, mainly if climate change is on the front end of our issues, where you can't keep building these data centres. You're burning more carbon, right? Somebody's going to notice that. The other thing is, going back a lot, there were things called data centres. Twenty years ago, 25 years ago, we used to call them telecom hotels.

And I did a lot of that when I was a puppy lawyer. What blew that up was the dot com bust of 2000. And it's not going to happen the same way because, as Michael was alluding to, the players have balance sheets, and Apple is more significant than most countries in the world. But what happened the last time when they put too much capacity online in California, New York, and Illinois, like union-heavy states?

Historically, the tenants have worked with leans, which is the landlord's job. So think about what that means for a second. I'm a tenant. I'm putting millions of dollars of infrastructure into this data centre. Okay, I'm WorldCom, and I go BK. The contractors who put that conduit in the fibre didn't get paid.

They put a lien on a landlord's real estate in New York, Illinois, right? And you, you BK the whole thing. What could happen if there is a slowdown? It takes a lot of work, AI, this constant demand, and their balance sheets are tricky. So, as long as it's Google, Microsoft, or Amazon,

And Apple, they're not going; the minute you start getting start-ups trying to get into that thinly capitalized game, you could have the same problem. 

Chris Powers: So is there, not a way to mitigate that legally up front to where it's like, look.

Michael Fishman: Statutory. I mean, it even gets...

Michael Baum: The contractors add value to the estate. They have rights. 

Michael Fishman: They have rights, and you can't insure over it. Right. With the title insurance. When you look at the title insurance, I remember tenants' rights as tenants only. And you have, it's, so that's a very legal thing. So it's interesting that this is a bubble, and bubbles always burst.

It may take a very long time because we need so much of it, but we will start history repeating itself, and the access needs the power to plug it in. And, just the creditworthiness, if it keeps getting bigger, bigger are going to be the two issues, but it won't be an issue that we're dealing with today. It's going to be an issue for the podcast. 

Chris Powers: Okay. If I had, we'd end it on this question. How do I phrase it? What is the most significant legal risk you see that most people don't understand they're taking? Is that a good question in the real estate world? 

Michael Fishman: Like, I'll give it to you. It's the old line.

So, years ago, he taught me the ropes when I was a senior guy and a very prominent developer. He says, Hey, I have three daughters, and when I kiss them to bed at night, I ask them, I ask them...

Michael Baum: Well done, fish. 

Michael Fishman: Thank you. I asked them three things, right? Who loves you more than anybody in the world?

Daddy. And what's the key? The two keys to successful real estate. Non-recourse debt and the use of other people's money, boom. And if you ask my kids or his kids, what's the key to successful real estate? And when there were seven non-recourse debts and people using other people's money, because that's when you go down, you assign an extensive guarantee. Because you think everything's going to work out. And the next thing you're facing is old Saddleback. 

Chris Powers: With sweaty tits. 

Michael Fishman: Sweaty tits. That's the lesson. Do you agree? 

Chris Powers: It was a great one. I agree.

Michael Fishman: I can't think enough. 

Chris Powers: This is awesome. 

Michael Baum: A ton of fun. 

Chris Powers: Thank you, guys.