Johnny Merritt 0:00
Started with them just charging them a monthly fee. And and for that they we have an engagement letter that sets out what typically an in house General Counsel would do. And so the business can budget for that. And then then frankly, we encourage calls in the front. Like, I think about the old cell phone example where you have free minutes, you know, they’re not actually free. But But what we found through the years is that this this relationship actually encourages the clients to call the attorney and frankly, if the attorney wants to promote the business, and so I think in a very simple sense, it just puts the attorney in the business more in a partnership arrangement where they’re working together to accomplish the same thing.
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J Darrin Gross 1:10
Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today, my guest is Johnny Merritt. Johnny is an equity partner of Hajjar Peters LLP. He’s an attorney with over three decades of experience in complex corporate and real estate matters. And in just a minute, we’re gonna speak with Johnny about how a on demand fractional General Counsel relationship can work for you. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we invite you to leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel at Commercial Real Estate Pro Network on YouTube. And while you’re there, please subscribe. With that I want to welcome my guest Johnny Welcome to CRE PN Radio.
Johnny Merritt 4:05
Thank you so much for having me. It’s it’s exciting for me to be here. excited for me to talk to somebody from Austin to Oregon. What, what great, great opportunities we have to share information.
J Darrin Gross 4:18
It’s gonna be good. Looking forward to it. Before we get going, Johnny, if you could take just a minute and share with the listeners a little bit about your background.
Johnny Merritt 4:29
I’ve been an attorney since since the late 80s. As you can probably tell from my gray hair and I graduated from law school late 80s wanted to be a transactional lawyer was focused on being a transactional lawyer and I graduated and accepted the job of the transactional law firm and the savings and loan crisis hit the light 1980s. And shockingly the federal government hired the law firm I was going to work for the handle directors and officers liability cases all over the nation. And so for the first 10 years of my practice, I went to a transactional law firm and did litigation for 10 years. And but I’m not a litigator and transactional attorney. So after 10 years, this was between 20 and 25 years ago, I decided to stop doing litigation and focus entirely on the transactional work. Since that time, I’ve done corporate work, done a lot of real estate work, and and has served as a outside General Counsel for $1.5 billion company, which, which frankly, showed me the value of relationships between attorneys and their clients. So the last 25 years, I’ve done real estate corporate work, and kind of been the go to guy for businesses who need help with their transactional work.
J Darrin Gross 5:59
Gotcha. That’s an interesting introduction into the legal profession there the the crash, and go in and litigating the directors officers type claims. You know it’s funny,the, it’s just trying to think of as you were saying, you know, your background wanting to be transactional, but yet ended up litigating, is it not? Kind of a thought that if you don’t have your your transactional paperwork set up properly? That are you I mean, one of the reasons to have the transactional paperwork, and all the contracts set up is to avoid the litigation? Is that not?
Johnny Merritt 6:45
I think, I think that’s absolutely correct. I mean, one and we’ll talk about whenever you’re ready to fractional General Counsel of one, one reason I want to do that is because I want to encourage communication between myself and my clients. And and certainly to the extent that we can help clients in setting up their transactions and or reviewing contracts we do, we can help avoid litigation. But I will say this, I was speaking to a group of Baylor Law students a couple of weeks ago and about and asked them the question the class, what do you want to do? And then I explained to them, what you probably will do is whatever comes in the door, and and then explain my experience with with becoming a transaction that litigator in spite of the fact that I wanted to do transactional work, but you’re absolutely right. We, the goal, frankly, after being in litigation for 10 years, I don’t like litigation. And so my goal is to help clients avoid that, and frankly, at all cost, if we can.
J Darrin Gross 7:51
I would think also, having had that experience, like you said, wanting to help people avoid that it would give you some insight as to, you know, ways it can be avoided is that did you find that to be the case?
Johnny Merritt 8:06
I do. And and through the through the 25 or so years, as a transactional attorney, there have been lots of instances when I wish a client would have called me beforehand, so that we could have avoided problems and and and but but it does, the other thing that it does is as I’m reading a contract, or as I’m setting up a company, or as I’m thinking about the structure for a specific deal, it’s my first 10 years of practice is always on my mind. And I’m always trying to avoid those. What litigation is a lot of times it’s transfer of wealth, I think from from the the disputing parties, frankly, to the attorneys. And so to the extent that we can avoid that we tried to do that.
J Darrin Gross 8:57
No, I have a few clients that would concur with that. I have I’ve, I’ve seen it. And I think that, you know, like any industry, there are those that deserves a reputation and others that that basically are, you know, fall to the reputation of others kind of thing, but just that notion of that, you know, the attorneys are in it to, to, to get paid, you know, and to, to keep it going as opposed to seek a solution kind of thing. So, but like I said, there’s no there’s reputations in in all all different fields of work. There are some some, you know, good ones and some bad ones.
Johnny Merritt 9:43
Well, there’s, there’s no question a lot, a lot of the reputation that attorneys have are well deserved. And, and but, and frankly, at my age, I’m 59. So it made you reflect back on your career and I’ve had the opportunity to look back on the history The law profession and and and have studied where the law profession came from. And it’s unfortunate the way that that that the law profession has has, has become perceived. But But listen, I’d be your listeners would turn me off if and turn the program off if I didn’t acknowledge that the reputations in lots of instances well deserved,
J Darrin Gross 10:28
R ight? Well, and again, I don’t mean to count cast a broad brush and insurance we have the same kind of a challenge sometimes. But let’s talk about, you know, legal representation and and you know how a traditional relationship might work as opposed to kind of your fractional on demand model?
Johnny Merritt 10:57
Well, what I’ve noticed is that attorneys are really compensated in two ways in a very traditional sense. One is the, what you typically hear of is a contingent fee case where, you know, the McDonald’s coffee is spilled, and the attorney sues on behalf of the person who was injured, and they get between 30 and 40, sometimes 50%. Well, and that doesn’t work very well for a business model. But the way that that that transactional attorneys typically bill is by the hour. And what I’ve found through the years is that that creates a natural conflict, if you will, or perhaps conflict is too strong a term but perhaps not. The hourly fee, I think discourages calls the attorney, the businessman who are looking at their bottom line, they want to save money, they want to budget for things and and as they look at this contract, they think to themselves, I can call my attorney, but they’re they’re there, they’re going to start their clock and their clock going start taking and for what seems like a minute or two call, I may get $150 bill and, and and frankly, attorneys, particularly in the real estate arena, we don’t provide sexy drawings with the things that architects provide or, or plans where they they set out things that are the real estate person loves to see, what we’re doing there typically is just an expense. So I’ve started I started thinking many, many years ago, how can we change the paradigm? How can we make put the attorney on the same side if you will, with the client. And and as I said at the beginning, I’ve been essentially an outside General Counsel for $1.5 billion company for over 20 years. And and so I started with them, just charging them a monthly fee. And and for that they we have an engagement letter that sets out what typically an in house General Counsel would do. And so the business can budget for that. And then then frankly, we encourage calls. And in the front, I think about the old cell phone example where you have free minutes, you know, they’re not actually free. But But what we found through the years is that this, this relationship actually encourages the client to call the attorney. And frankly, if the attorney wants to promote the business, and so I think in a very simple sense, it just puts the attorney in the business more in a partnership arrangement where they’re working together to accomplish the same things. So that’s that’s kind of a general introduction of what what we we are doing.
J Darrin Gross 13:55
That makes a lot of sense. I know. You know, there are those things that that I’m resistant to do. And I know others you know, just like you’re saying the budgetary concerns are just the unknown. And in a lot of times in legal things, if you sit on it or wait on it, it’s not going to get better. And I’m assuming that that your model is allowed you not only to build that relationship but also to kind of nip things in the bud before they kind of fester and and become something that’s a little bit more challenging is that Do you find that to be the case,
Johnny Merritt 14:37
you’re you’re you’re directly on point at the end and you use the word that that is is is just critical and that is relationships. In this type of concept we deliver we we develop long term relationships with our clients, we get to know their businesses. We get to know what they like and and free Legal issues are just a small part of the formula for success of a business. And so although we partner with them, we also have to understand how to stay in our lane. And we also understand that ultimately, we may give them our clients advice on what the consequences of certain actions or decisions may be. But ultimately, it’s up to the client decide what what’s in the best interest of our of our operation going forward from a legal standpoint. So yes, we were able to nip things in the bud were able to assist in in structuring things and putting puzzles together. So it’s the business operates properly. And the other thing I might say is to the extent we do something, and we operate for a while, and we determined You know what, this has created a little too many headaches for the CFO of the business, we can then go in and alter things and make things work better for the business.
J Darrin Gross 16:06
So that’s always a good thing. So let me ask you so that the the historical model has been a call the attorney and then get the bill based on the time spent, and like you said, it always felt like you had a two minute call, but you’re not totally aware of all the time they spent, after you hung up kind of thing. And what shows up on the bill, your model, I’m assuming just kind of, can you explain how you come up on the pricing? Because I’m assuming if you got a a smaller firm, versus a larger firm, is there a kind of arithmetic, or some sort of a formula there for how you determine whatever that raterate would be?
Johnny Merritt 16:49
We do. We do. We still keep every week, we record our hours, just as if we were billing per hour. Let me digress for a minute and say one thing that I love about the this system is the hours aren’t always the best measure of good lawyering, for instance, I was working on a corporation the other day that involved a professional entertainer. And and so I wanted to put that make some changes to that that corporate agreement that would be more appropriate for that professional that your listeners would know if I were to tell them but but the fractional allows me flexibility to spend more time to do things. But to answer your question specifically, we still keep our hours. And every month, we send a statement that that includes time entries of everything that we’ve done. And and and then there’s a flat fee at the bottom. And what we have found is that the the clients, I like it better when the clients are getting a better deal, when they’re when they’re actually getting a discount. But what we have seen through the years as in this is it’s it’s I guess it’s to some extent, it’s selfish, but it just works this way. As, as the the clients understand the value of the service we provide, they use us more. And so what we do is every six months, we audit the each of our clients accounts, we tell the report to them where they would have been had they paid us an hourly fee and what they have paid. And historically they they got a very good deal. But we we asked for adjustments not to equal the hourly fee, but just just because they’re using this more so so very transparent. So that the clients know exactly how it compares to what they would be paying if they were paying the hourly fee.
J Darrin Gross 19:00
So kind of like thinking on I think it’s maybe our gas bill or something like that we have that kind of a level pay kind of a thing where you get the right, you know, the year end, remember the first year we bought a house and the winter months came and the heat went on and the bill would, you know, through the ceiling kind of thing and we called and got on quote level pay was like some, you know, something was spread out a little bit more and it adjusts annually. I know kind of thing. Right? So but I think the important thing that I I recognized and sounds like you’re you know you’ve you’ve touched on Is it just the ability to budget for that and not have that. That reluctance to call the professional that can help you navigate something before it becomes something that shouldn’t have.
Johnny Merritt 19:52
That’s that’s exactly that’s exactly right. I mean we we lot of our clients have been big transaction. It takes a lot Time that month, they’re going to get a really good deal. And, and, and frankly, I like that in, I don’t care what business you’re in, you want those people who are interacting with you to feel that they’ve got a good deal, they’ve got value. And I love that. And so the fact that we’re, we may be substantially less and less on what our monthly routine what our hourly fee would be. Frankly, that doesn’t bother me, it thrills me, because that just shows we’re providing good services to our clients for good value.
J Darrin Gross 20:34
Right. So let me ask you with the way you’re set up, in talking about relationships in that in, I guess it would be kind of like even a value kind of a question. The law changes, it seems like it’s constantly changing. Are you able then to communicate this on a more regular basis to your, your clients to, you know, advise what the changes are? How they will affect them? Or what, you know, is that part of this as well?
Johnny Merritt 21:15
Yes, once once we if we see a development in, in in the law, for instance, only give me an example, the PPP loans, when the when COVID hit, and the PPP loans became available, I read that that’s that legislation very, very carefully. And because I wanted to see whether that was something that I should recommend to my clients, and, and frankly, we sent an email to all of our existing clients relating to the advantages and disadvantages of that, that loan, and that loan program. And frankly, we wanted to do it very quickly, because as as your listeners will recall, the first amount that was authorized, was used up very quickly. And and so those people that moved quickly, that that needed, or felt they needed that loan was was were able to I don’t know what any of my clients that were unable to get it if they wanted it. And so that’s a good example of the services we try to provide to the to our existing fractional counsel clients. Yes. Good question. Thank you.
J Darrin Gross 22:31
Well, and even with that, he is a recall there was a question about taxable non taxable, or I don’t remember, there was some, I remember there was the the the Hurry up, like you mentioned there, but it seemed like there was something that changed in the way it was presented versus the the backside of that, I don’t know if that was like on a condition of the way you use it or something. But I, but I would think certainly the COVID has given you guys an opportunity to keep your clients informed on the changes and potential consequences of actions based on all the just crazy things that COVID brought.
Johnny Merritt 23:14
I think COVID has has really given us an opportunity, because iOt covered scary. I mean, you know, we can all put a brave face on and we should and we’ll get past COVID there’s no doubt in my mind, but but there has been an impact in the real estate market, particularly of COVID. And having the opportunity to have an existing relationship with an attorney for an amount that’s budgeted is I think, is has been very helpful. I guess the proof would be in the pudding that the real issue is what am I What are my clients saying? But I think that they would say that, that, that, that having that relationship, one of my biggest clients is in the food industry. And and, gosh, we were trying desperately to deliver food to grocery stores. And and I was I wrote an article in there’s, as attorneys, we don’t often get to say very specific things. There’s always issues, but I was able to say write a sentence that for the first time it was absolutely true. And and what that was was on this specific COVID issue is a 30 year plus attorney and I have exactly the same amount of experiences every other attorney in the state of Texas. And so but I think those existing relationships are helpful.
J Darrin Gross 24:42
No, no, that’s that’s, that’s fascinating, just how you like said that the situation changes. And, you know, is the and I think the other thing that I this this applies to is just the realization of how the laws are formed. They’re, they’re conceptual, when they’re passed, but they’re not really tested until they get to the court or whatever. I mean, is that right?
Johnny Merritt 25:11
Well, and again, I got that great, very good question. Another, that’s another time I bring up the PPP loans. You know, the PPP loan, the statute said was very specific on who was eligible for those loans. And then after the statute was written, a lot of the politicians became concerned about some of the uses and some of the some of those businesses that were eligible, frankly, under the statute. And so we were able to provide our counsel our clients, I think, very good counsel, on on, you know, that not only what the law said, but then the politics that followed that. And, of course, everything’s exaggerated in COVID. But, but, again, I think it provides a good example of the type of services that we like to provide to our clients, thank you for asking that.
J Darrin Gross 26:08
So, you are based in Texas. Are you limited to Texas real estate type clients, or do you have clients all around? Can you speak to that?
Johnny Merritt 26:07
Well, we, of course, I’m only licensed in Texas. I do have clients from many, many other states. But for the most part, we limit our legal representation to relating to Texas legal issues and to the extent we need experts there are attorneys in other states we’ll call in other people.
J Darrin Gross 26:50
Gotcha. In the real estate market, in Texas, I mean, I always think of Texas as kind of its own entity as far as economy and, and size and just the ability to kind of be its own market. Any lack of activity going on in Texas right now?
Johnny Merritt 27:12
Oh, gosh, it Have we got six hours of this program. The it’s fascinating, what’s going on? Is is fascinating, it’s disturbing, it’s great. It’s all I would say in a, from a residential standpoint. Talking to an appraiser the other day and he said for the first time ever, he he seen a both a seller and a buyers market, he’s never seen that. And that’s because the prices are high, but interest rates are low. So as a result of that, that is promoting sales. Here in Austin, we’re seeing it’s kind of turned on its head. Before COVID, Everybody wanted to be downtown. Now everybody doesn’t want to be there. Nobody wants to be downtown. So there’s there’s an exodus from the urban areas. On a commercial standpoint, it’s it’s, you know, the, the point where I think we’re gonna see a pretty significant change because people can work from home. And but those, the office leases are typically more long term, and so that we’re having a lag to see how that’s going to impact retail, of course, has been horribly impacted. Unless you own an industrial building, like Amazon, or Walmart. And so, the sexy buildings now or the interest industrial buildings, whereas used to retail strip shopping, and then also finished with this. The anchor tenants in the retail shopping centers, they faltered used to it was the retail stores that carried those centers, that’s the service stores, the the the the nail salons or the the the healthcare facilities, and those are curating those retail shopping centers. So but but right now, the economy is very strong. I think it depends on what’s going to happen within employment. It depends on what’s going to happen with politics. And and it depends on what’s going to happen with more government assistance, I think. But there’s a lot of balls in here on that on real estate in in Texas, and I frankly frankly think that’s nationwide.
J Darrin Gross 29:48
Yeah, definitely some interesting times, Johnny, if we could, I’d like to shift gears here for a second. As I mentioned before we got started recording by day I’m an insurance broker. And as such, we do risk management with our clients. And there’s three strategies we typically consider, we first look to see Is there a way we can avoid the risk. And if so, then we we eliminate the risk. If we’re unable to avoid the risk, we look to see if there’s a way we can minimize the risk. And if we cannot avoid nor minimize risks, and we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And I like to ask my guests if they can look at their own situation. This could be their clients, investors, tenants, the market, etc. I let you identify what you consider to be the biggest risk. And for clarity, I’d like to make it clear, I’m not necessarily looking for an insurance related answer. And if you’re willing, I’d like to ask you, Johnny Merritt, what is the biggest risk?
Johnny Merritt 31:10
Very sincerely in this comes from my relationship with this $1.52 billion company that I’ve represented for over two decades. I think the greatest risk of business has is not having a good relationship with an insurance person. There are a couple of, as general counsel, what what you what you’ve learn to do, is you, your’re a generalist. You provide those services that the the business typically would need. You review contracts, you you attend board meetings to you. You look at real estate transactions. But then then you get calls on for instance, intellectual property. But that’s when you call them the expert. They’re all there are a handful of people that I that I rely heavily upon. One is accountants. And you need to be able to call your accountant. Another one again, for my clients, I have a great IP attorney and intellectual property attorney. But I also have a an insurance broker, that, frankly, I am in constant contact with. Weekly is probably an exaggeration, but it’s over four times a month, it is I believe strongly that that you that every business needs to have a relationship with somebody who understands can they can recall and rely upon. And in frankly, this comes from experience, we represented an entity that did not have enough insurance. And in it, we found ourselves with a substantial liability, they had not allocated the kind of using your formula did not evaluate the risk properly. They had not and then they had not allocated or taken care of. So I it sounds like it’s so self serving in your favor. But it’s just the truth is is having just like having a great attorney, and having a great accountant. You need to have a great insurance person who you trust to who you understand is not just out to sell insurance, but is there to help you protect and minimize your risks.
J Darrin Gross 33:52
Johnny I really appreciate you saying that it’s I mean it’s something we try and do our best to communicate with our clients. But it’s always nice to hear it from some someone and I appreciate you saying that. Johnny before we wrap up where can listeners go if they’d like to learn more or connect with you?
Johnny Merritt 34:17
Johnny Merritt, johnnymerritt.com is I have a website they’re also the law firm is hajjaessentially our h h h a r Peters or Johnny Merritt in Austin. We the websites probably the easiest, you can get our phone number there, it’s easy to remember, it’s just my name dot com and we’d be thrilled to visit with any of your listeners to that. Let me also say if some of you listening to our attorneys in Oregon or elsewhere that that this concept sounds like something they would like to consider. I’d be thrilled to talk to them. As well, I really am interested in changing the paradigm altering the view of attorneys, instead of just being an expense and a hardship. We’re actually partners with our clients.
J Darrin Gross 35:13
Awesome. Johnny can’t say thanks enough for talking today. I’ve enjoyed it. I’ve learned a lot. And I hope we can do it again soon.
Johnny Merritt 35:24
And we appreciate this, this opportunity to speak to you and to listeners and, and hope that what I’ve provided is somewhat helpful and we, we’re gonna make it through this COVID and they’re exciting times.
J Darrin Gross 35:43
For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. CRE PN Radio.
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