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News Jun 16, 2016

LegalTech: Robot Lawyers in Real Estate Law

Hardly any other sector has such an immense amount of contracts and data as the real estate industry. Startups leverage this fact in order to support real estate companies and attorneys during transactions as well as contract management.

Doesn’t Sherlock Holmes’ loyal companion come to mind when you hear the name “Watson”? Do you know who LEVERTON, Busylamp or Realbest are? If you do, you belong to the digital avant-garde of the real estate industry – an industry that is more casual and literally more down to earth than the other sectors.

Contracts, construction plans and tender proposals exist only in paper format most of the time due to formal requirements, which brings about certain challenges for companies and their legal advisors. At the moment, digitization is disrupting the way real estate transactions are being processed. In the past, lawyers reviewed large piles of files for so called due diligence, while today, lawyers are supported by data rooms and virtual, self-learning assistants.

“We have taught it a lot. Sometimes I feel like its coach,” says Cornelia Thaler, Partner, Clifford Chance LLP

When you listen to this real estate attorney from Clifford Chance, one could think she is talking about her godchild or a young, inexperienced lawyer. Yet, Thaler is not talking about a human being, but about a program that she is continuously feeding with data and that has assisted her in deals with Brookfield, her Canadian client. The acquisition of a complex of skyscrapers on Potsdamer Platz was one of the biggest real estate transactions of the previous year.

“The program is an incredible assistance for all of us,” tells Thaler enthusiastically. “And it will change the work of lawyers.”

The software has been developed by the Berlin-based company, LEVERTON, which was founded as a spin-off of the German Institute for Artificial Intelligence in 2012. With an origin like this, the imagination of robots that could work autonomously by themselves to a large extent, does not seem farfetched. LEVERTON’s cloud based software reads contracts at high speeds and analyzes them with artificial intelligence.

The product memorizes certain text passages and, in this way, recognizes patterns and links to other documents. “The system learns with every document that is analyzed and every extracted data point, e.g. what lease terms the agreements have. The software makes it possible to access relevant content with just a few clicks”, explains Emilio Matthaei, CEO of LEVERTON. However, the software still needs to be operated by humans, and also the legal assessment of the extracted information is still done by real estate lawyers.

Within the past one and a half years, the German tech scene has become significantly differentiated due to numerous newly founded startups. There are startups that consciously address end-users with their services, for instance helping with inconsistency in penalty notices. In addition to this, there are companies such as LEVERTON, who have a B2B approach and position themselves between real estate companies and their lawyers.

Among lawyers, the algorithm from a backyard in Berlin is a spectre. The software does not drink, eat or sleep. And it is significantly faster than any lawyer. LEVERTON has developed a disruptive technology. The current business word of the year was created by the American professor of economics Clayton Christensen. It describes an innovative technology that has the potential of completely replacing an existing product or service.

Companies that do not prepare their consultants for it, may only be second choice in the next project.

“This innovative technology enables us – within the scope of a due diligence – to deliver an even better, more efficient, and faster service to our clients,” says Niko Schultz-Süchting, whose law firm, Freshfields Bruckhaus Deringer LLP has been co-operating with LEVERTON since a few weeks ago.

The fact that technology providers are active in precisely the real estate industry has several reasons. On the one hand, the economic upturn has led to numerous portfolio transactions that easily contain thousands of lease contracts. This leads to steadily increasing requirements for professional data processing on both seller and buyer side. On the other hand, companies want to save costs for standardized workflows such as contract management.

“The tool is very helpful if I want to gain a quick overview of the data available in my contracts and the profitability of a portfolio,” says Philip La Pierre, Head of Investment Management – Europe at Union Investment Real Estate (UIRE).

The investment company has been working with this Berlin-made software in acquisitions and divestments for approximately two years.

During the first trial run in 2014, the algorithm read quickly through 600 lease files. UIRE wanted to simplify the reviewing of contracts for potential buyers. In addition, they wanted to know themselves what effect the commercial lease agreements would have on the revenue. This process was significantly simplified thanks to LEVERTON.

For potential buyers, the primary question of what they are getting into economically, thus, could be discussed earlier on in the negotiations. After this success case, Project Aqua followed in 2015. With the transaction, four open funds with assets in six European countries changed owners. Here, as well, UIRE preferred artificial intelligence over a manual due diligence.

“The usage of the program is interesting for international investors, because these buyers are actually only interested in pan-European portfolio purchases,” says La Pierre.

It seems like UIRE plans to expand the application of the software. Within the area of Facility Management, one is already profiting indirectly through service provider STRABAG PFS, who likewise is relying on LEVERTON to gather information from contracts.

Tech providers make the support of transactions more efficient. But can they replace lawyers? Dr. Matthaei does not want to make a “them or us” statement.

“Through the automated data extraction, we allow lawyers to focus on the core tasks of their work again – the legal assessment of the information within contracts,” he says  – a bridge builder between the analogue and digital business worlds. 

The original version of this article was published in German on Immobilien Zeitung.
Author: Marcus Jung, Business Editor, Immobilien Zeitung

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