MIAMI—Could we soon see another wave of litigation in the commercial real estate industry? If so, what types of lawsuits might arise and how is it different than the last cycle?

GlobeSt.com caught up with Jason Kellogg is a partner at Levine Kellogg Lehman Schneider + Grossman, to get some insights in part one of this exclusive interview. Kellogg represents clients in commercial contract and business torts disputes, class actions, owners and contractors in construction litigation, and securities litigation.

GlobeSt.com: The current real estate cycle remains strong but what indications are there that litigation may be on the horizon?

Kellogg: The biggest flashing red light, in my mind, is simply the fact that a significant amount of new construction involves condominiums. Historically, condominium construction just breeds litigation. Nearly 100 new condo buildings are either under construction or proposed in the greater Miami area alone. 

GlobeSt.com: What types of lawsuits do you anticipate, and how does this differ from the major disputes that characterized the last cycle?

Kellogg: The sheer amount of condominium construction, coupled with reports of a shortage of skilled workers working on those condominiums, suggests another boom in condominium defects litigation. There has also been speculation of a growing condo bubble.  

If that bubble bursts, then we will see another round of the attendant litigation: buyers trying to get out of their contracts, lenders foreclosing on developers, and developers seeking bankruptcy protection. Everything would look pretty similar to what happened last time. Hopefully, however, the lenders have engaged in better underwriting this time around, and the condo bubble is a fear that never materializes. 

GlobeSt.com: Subcontractors got burned very badly last cycle. Have they changed the way they do business as a result of lessons learned?

Kellogg: Before the last cycle, subcontractors were sometimes afraid to lien a project or, if they did file a lien, they would hesitate to foreclose. They did not want to rock the boat, alienate the developers and potentially get left out of the next project. 

This next time around, I doubt they will hesitate to lien and foreclose.  Everyone now understands that things go south quickly, and subcontractors will be looking out for number one.

GlobeSt.com: How might this impact the negotiation table for developers and contractors?

Kellogg: Ultimately, developers and contractors will likely build even bigger legal war chests into the price of construction. They must now treat post-construction litigation almost as a given.