The effects of the global credit crisis are increasingly being felt in China's real estate sector. As new deal activity in the sector has come to almost a complete standstill, many law firms have reported a decline in demand for real estate finance legal services. However, there are still opportunities to help clients deal with current economic conditions.

For the next six to 12 months, law firms believe that the restructuring and refinancing of existing real estate projects will be a growth area. "About 60% of the deals we have worked on in the last three to four years have had to have some kind of adjustments or modifications in the last six to 10 months," said Joel Rothstein, head of the China real estate practice group at Paul Hastings.

The main matters the group is now working on include pre-IPO finance deals, non-recourse cross-border dual currency real estate loans, and assisting various clients in exiting some investments. Most of the deals involve offshore structures. The group has also been involved in representing certain US Lehman Brothers entities in the sale and liquidation of Lehman Brothers' Asia real estate assets.

"The financing on many deals that we worked on a few years ago will start becoming due in 2010, and structures and strategies for dealing with the maturing debt will need to be addressed," Rothstein said. Like many other practitioners, he expected there to be increasing amounts of bond issuances, share placements and follow-on financings of both listed and private real estate developers in China.

The firm is advising on leading commercial property developer Soho China's plan to raise US$360m from issuing convertible bonds in Hong Kong. Upon completion, it will be Asia's largest CB issuance so far this year. Rothstein said in this deal the proceeds were to fund strategic acquisitions and for general corporate purposes.

Other international firms, such as Skadden, have also seen the nature of the transactions on which they are working change significantly. "The focus of our real estate practice has shifted in line with our clients' business needs," said Ed Sheremeta, a partner of Skadden in Shanghai. "Instead of advising on real estate finance work, we are increasingly focusing on debt and equity restructuring, and alternative funding arrangements to finance our clients' investments."