2026 Predictions: Real Estate Reset, the Agentic Law Firm, and Make IPOs Great Again

Transcript

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Brian Elliott: It's a matter of looking at, you know, what you can control, right? And then what the most, what, where the direction of the, of the country is going. Learn more at scalefirm.com. Nice to speak with you again, Brian.

Chuck Kraus: It's December. We're a couple of days from, from break for the end of the year. We wanted to do a look back on 2025. It's been a whirlwind.

Brian Elliott: Hey, Chuck, glad to do this. You know, always a busy time at the end of the year for corporate lawyers, but nice to make time to take a look back, understand, you know, where we've been all 2025 and hopefully take a look forward as well. We recorded 16 episodes so far. I looked at some of the stats, downloads in 10 countries.

Chuck Kraus: You want to guess our most downloaded episode? I'm going to say we got off with a, with a fast start. I'm going to say it's the, one of the original business court episodes. Yeah, that's right.

Brian Elliott: Maybe, maybe it's because of the roots of, of that time to go down, uh, deep, but yeah, number one was, uh, the first episode, Texas business courts. Uh, the second most downloaded was the law for the, of the future with forest episode 14. And then the third most downloaded was the future of law rapid fire session that we recorded in Denver. Great.

Chuck Kraus: Those are some of my favorites. Is that right? Uh, what, what is it about? What is it about those there that make them their, your favorite?

Brian Elliott: Well, I think the, you know, the, the rapid fire one that we did in Denver, uh, really was, you know, sort of it, if listeners want to go back and take a look at it, I think it's episode number 10 and, and really the format of that, I think was a bit different from us from what we normally do. We had, you know, six or eight people around the mic and we passed the mic and asked a bunch of questions and for me, what it did is it really, um, it illustrated how different lawyers can come at the same issue or the same problem in a different way. Right. And it showed that, you know, the sort of the internal thinking of a group of lawyers that, you know, we're not, you know, monolithic.

Chuck Kraus: We don't have, you know, a single opinion on matters and reasonable people can differ on their interpretations or their areas of emphasis or, uh, priority on different subjects. I thought it was fascinating really to look back at. Yeah, I agree with that comment. I think it's, it's one of the things that leads me to believe we'll talk about this later, I'm sure.

Brian Elliott: But, you know, there's all this debate about is AI going to eliminate the need for lawyers. Um, and your comment just now. think of something I was reading on the weekend that was talking about content versus context. And I think episode 10 is a great demonstration of how important context is, because you get a bunch of lawyers together from different parts of the country with different experiences, you know, all responding to the same question, but the answers were vastly different.

Chuck Kraus: And through the conversation, through the filtering of different context, I think you got potentially better answers than you would get just by asking your favorite AI bot for their answer. It's a good takeaway for me, right? It's because, you know, a lot, you know, some people say lawyers are fungible, right? One corporate lawyer is the same as another corporate lawyer.

Brian Elliott: But if you're a, you know, if you're deep in the Silicon Valley VC ecosystem, it's going to be very different from a, you know, an energy focused private capital attorney in Texas, right? Like those are two different worlds, right? That have different inputs and different, different risk profiles. And, and it's, it's great to get, you know, a range of people together to start delivering, you know, perspectives.

Chuck Kraus: And your point about how does this, you know, map into AI AI is a, is a great one because, you know, we, we go to these tools and it gives a single answer, right? And then if you probe it again, it might give a new, you know, a variation on that single answer. But the question is, does it replicate what you get from, you know, a broader law firm that might bring, you know, wider perspective to a matter? Yeah.

Brian Elliott: I've been thinking about that a lot. I mean, certainly these tools, you and I are both using them every day in our practice and they're, they're fantastic for certain tasks, making certain tasks faster, but what they don't bring is nuance and judgment and understanding of, of, of different forces at play in a negotiation or in a, in a situation. You just can't possibly draft queries that are, that are that detailed, right? You know, I think, I think these, these GPTs are great at passing the bar exam because they're exposing that a lot of that exam is based on pattern matching and they're very good at pattern matching, but not, not necessarily great at the other aspects of, of the practice of law.

Chuck Kraus: Exactly. Pattern matching is part of it. Not all of it. So what about you, Chuck?

Brian Elliott: What, what, what are some of your favorite look back episodes? I would, I would name two. I think my favorite would be the Texas corporate law overhaul. I think it, you know, it was a tremendous change in the state of Texas, particularly for corporate lawyers, the, the amendments, the Texas capital market bills that were passed.

Chuck Kraus: I think, you know, we saw an initial, you know, response that was very favorable. And I think as we go into 2026 and 2027, you're just going to see more and more benefits of that rolling forward. I think my second favorite is probably the conversation with Adam about the law firm of the future, you know, and it touched on a number of things we were just musing about in terms of the the IP associated with a collection of lawyers and how to harness that collective knowledge. And I think, you know, it also aligns with one of my 2026 prognostications that I'll save for later.

Brian Elliott: Great. Yeah, no, those are those are great episodes. I agree with you. The the the corporate overview, you know, we I'll say I'll call it like a restack of the of the corporate rules in Texas was fundamental for 2025.

Chuck Kraus: And we'll get into that, I'm sure. But it it's a great episode to look back on, understand sort of the basis of some of the the laws that were passed. And now we can see in 2026 how they're going to all roll out and what the impact is going to be. One of the things we were musing about when we were when we were reviewing that episode, which was, again, episode 11, was the then the current status of the Tornetta v.

Brian Elliott: Musk litigation in Delaware. And as we're recording this, you know, the decision just dropped at like 5 p.m. And last Friday, the Supreme Court of Delaware found that while there was a breach fiduciary duty, the damages awarded were a single dollar. And most importantly, they found that rescission was not an appropriate remedy for a bunch of reasons.

Chuck Kraus: I'm going to oversimplify. But basically, rescission was unavailable because you couldn't also give Mr. Musk six years of his life back. And he did, in fact, serve for for six years.

Brian Elliott: So unless you could make all parties whole, rescission wasn't an appropriate remedy. Fascinating outcome in the case. Yeah, definitely a wrinkle. But, you know, these these conclusions take time to work through the process.

Chuck Kraus: Right. So we we got, you know, to to the end of what the Delaware Supreme Court opinion is, which remands it back down. And now it's got to work its way back through the process again. Right.

Brian Elliott: Which is one of the things which we will get it to, you know, that that changed in Texas this year is an attempt to streamline or, you know, pull these things. The business legal process, make it more streamlined so that we can accelerate some of these disputes and not have them drag on for years in the courts. I counted 62 individual lawyers listed on the face page of the document and at least 30 different law firms or legal organizations. And I say that because it's an advertisement for Texas SB 29, you know, as we talked about.

Chuck Kraus: One of the things that it did is it it gave companies an ability to cap or prevent these derivative suits unless the shareholder owns a minimum of three percent of the company's common stock. All that is to say this case would never have even been brought had had it arisen after Tesla redomesticated to Texas. Yeah, I mean, you know, the thresholds to to bring the cases are different. And then, you know, the speed at which the Texas business course can operate is going to be a lot different.

Brian Elliott: Can I share one more episode that I want to look back on before we move on to absolutely to big events? One of the episodes that really stood out to me, Chuck, was you invited one of your clients to speak with us. And that was bookmarked. And, you know, what really stuck out to me from that episode was this was a true founder story.

Chuck Kraus: Right. It's a it's a it's a story about developing under pressure, regulatory pressure, political pressure and really addressing important issues for today. And I think Steve Wandler, the CEO, really brought a human aspect to the the idea that, you know, of of really trying to build a startup in a difficult environment. And it's not all just about fundraising.

Brian Elliott: It's about, you know, getting products to market. But it's also, you know, facing, you know, market pressures and those market pressures come from a lot of places. And that was really a pivotal episode for me in terms of grounding what we do every day in the in a real life human story. Yeah, it's a great company.

Chuck Kraus: Appreciate you raising it. Steve's a fantastic leader and they really are, you know, a company that that is well placed in a in a difficult time where there's strong arguments on on all sides of issues. And I think it's a it's a privilege just to be able to to work with them and and help them achieve achieve their goals. So we made we made some some predictions in late 2024, early 2025, Brian, we talked a lot about executive orders and challenges that that were hitting us in the in the first few days of the Trump administration.

Brian Elliott: We were talking about the FTC ban on non-competes. We were talking about remember this, the Corporate Transparency Act. Oh, yes. The act that wouldn't die.

Chuck Kraus: Yeah, the act that the act that wouldn't die. And in fact, there was there's even more cases still still going on about it. You know, and I think that the predictions for 2025 were just, you know, it's going to be a bunch of regulatory uncertainty. We covered some of that in in some of our episodes on.

Brian Elliott: autonomous vehicles and some of the legislation there adopted in Texas and just how to navigate, trying to give guidance to companies on how do you navigate and launch a product when the regulatory environment is uncertain. Well, yeah, let me just, you know, comment on that. We had, you know, speaking of executive orders, just recently the Trump administration signed an executive order, which the media has labeled as preempting AI regulation in the states. And it's not exactly what it did, but what that executive order does is it highlights the regulatory morass, the fragmented 50-state approach to regulating AI.

Chuck Kraus: A lot of good laws, including in Texas, have, you know, tried to put parameters around, guidelines around what AI can and can't do when disclosures are required, you know, what access consumers have to their information, etc. But it's difficult to be able to say at any one time that you're 100% compliant across all 50 states. That continues to be a challenge. It's a barrier to entry.

Brian Elliott: It really stacks the deck in favor of the large tech companies who can afford to do those deep dive analyses and check all the boxes. And it acts against the small operator who's trying to bring a new innovative product to market. The executive order, you know, in its attempt to try to streamline that, this, you know, fragmented approach to regulation really doesn't do that. What it does is it added even more uncertainty to the pile by saying that, you know, the FTC and the FCC have to, you know, promulgate new rules and that the Department of Justice is going to be looking at, you know, all of the rules that are already in existence in all the states and making a determination of which ones the administration is going to challenge.

Chuck Kraus: So what that does is it sets up this whole, you know, AI innovation process in 2026 for a certain uncertainty. There are going to be rules that are going to be made. They're going to be challenged. It's going to work its way through courts.

Brian Elliott: None of this is going to happen quickly. We're going to expect, you know, we're going to expect injunctions and, you know, nationwide injunctions and state injunctions. And we're going to expect, you know, challenges to existing rules. And then, of course, states aren't going to stop, you know, creating new rules.

Chuck Kraus: So it's going to be a continuing development of patchwork of rules for AI. So how does the board of an AI-enabled company think through the product launch and the investment of tens, hundreds of millions of dollars in that environment? Yeah. Yeah.

Brian Elliott: I mean, great question. So it's a matter of looking at, you know, what you can control, right? And then where the direction of the country is going, right? So following the leaders in the market is always a good first step, right?

Chuck Kraus: You don't want to do anything that's going to draw attention to you, right? But that doesn't mean that you shouldn't. What it means is that that's a safe space to be, right? Because the regulators are going to be looking at the major players first, and then they'll go downstream.

Brian Elliott: But in the meantime, if you are an innovative company looking to do something that is a little bit outside the box, it's get in front of the regulation early, put regulation as part of the business plan and make sure that you're as well-informed about where things are today and where they're likely to go six months from now so that you're not investing dollars in a business plan that's going to need to be changed 180 degrees in a few months. Yeah, I think that's sage advice. Absolutely right. Which I think is what, you know, one of the things both of us try and do in our practice.

Chuck Kraus: We're asked to, you know, some say crystal ball, but sort of predict where these things are going to go and try to plan around the corner, so to speak. It's a pleasure to participate in those discussions, and it's always a test to, you know, how prescient can you be with so many changes in motion? Well, let's try it out. Let's go back and forth.

Brian Elliott: Let's give our top three or four predictions for 2026. No holding back and more of the same is not a permitted answer. This isn't necessarily a hot take or a bold prediction. I think it's already in motion, right?

Chuck Kraus: But the commercial real estate industry is in a period of resetting already, right? So what we see in 2025 is there are certain asset classes that have been hit hard. right? Those include office and multifamily.

Brian Elliott: Other asset classes are doing okay. That includes industrial data centers, obviously on fire because of AI, right? But we're seeing stress in the market. And one of the problems is there's something like $1.2 trillion of commercial real estate loans that are going to be resetting in 2026, right?

Chuck Kraus: It's this huge amount. And at the same time, you've got in the office sector across Texas, you're seeing 25% vacancies. 25% vacancies in Dallas and Austin and San Antonio, a little bit higher, up to 27% vacancies in Houston. This puts extreme pressure on an office refinance, right?

Brian Elliott: So if you're facing a maturity coming up in 2026, your net operating income is down, your debt service is going to be going up because rates aren't coming down. Or even if they do come down, you've got 25% vacancy that's going to be putting all this pressure on the math that gets you to a refinance. So there's going to be distress on the market. That's going to be the bottom line for commercial real estate in Texas in 2026.

Chuck Kraus: It's going to be a distress market. It's going to hit retail, office, multifamily. It's going to be ongoing. There might be some bright spots.

Brian Elliott: Bright spots could be in industrial and storage, but it's going to overall be a difficult market. Yeah. Yeah. On a similar theme, my first prediction would be just generally the rise of the entrepreneur.

Chuck Kraus: I have a similar sort of negative view on employment, uh, generally in, in 2026. I think companies generally, if they're, if they're spending, they're going to be spending on implementing AI and tech tools into the company. Um, and if you're, if you're having to make a decision about, about implementing that tool or hiring, I think the, the tendency is going to be, let's see what we can do with the technology. Um, instead, I think what that results in is probably higher unemployment rates.

Brian Elliott: And I think that that then drives, um, a lot of people into sort of, um, forced entrepreneurial pursuits, um, in a lot of ways. And so I think we're going to see, we're going to see a lot more, um, uh, focus and effort in, in sort of startup and entrepreneur land. Yeah. I love that.

Chuck Kraus: And that it, it, it segues into one of the things I've been thinking about for 2026. Also it's the, it's the re shuffling of what it means to be a corporation or a company, right? It's, it's going to be, there's going to be a wreath. think around, you know, what operations do we need and what can be replaced by AI or other tools, right?

Brian Elliott: And I expect that companies are going to make some mistakes, right? They're going to be, you know, choosing a tool over a workforce probably too quickly. We're going to have, you know, fallout from those decisions. We're going to see some retracing on those decisions that are made, that were made, already made in 2025 or ones that get made early in 2026.

Chuck Kraus: As people understand that, you know, the AI deployment didn't deliver the results that it was supposed to deliver, right? We've got, one survey I read recently said that 95% of AI implementations fail to deliver the results that they expected, right? So, and they chalk that up to a number of things, but including it's that they're not, these AI deployments aren't necessarily really well designed to be, you know, geared to an actual business process that exists. It's just like, let's apply technology because it's the new thing.

Brian Elliott: So I think that there's nothing new there. This is just about, you know, tech implementation and can you make it work? But I think that there are a lot of business decisions that are being made today that are based on a, an expectation of, of, you know, better efficiency that might not ever show up. And this is one of the, one of the theses that, you know, you know, famous investor, Michael Burry has put out to the market, right?

Chuck Kraus: And, you know, he's famous from, from the big short and predicting the 2028 or the 2008 market crash, but, but he's calling out the, the whole AI industry is being, being hype and overblown. And I think that there's probably some truth in that. I'm not sure that I'm as, as pessimistic as he is on the AI bubble, but it's, but what he is pointing out is companies are making decisions about, about efficiencies that haven't been proven in the market, right? Like, so they, so there's a, the, the hype is leading where the market is proving out the technology.

Brian Elliott: Yeah, I think that's, I think that's exactly right. I think one, one of my other themes sort of relating to this is you're, you're going to see pushback from consumers about wanting to, you know, engage with their, their, their company, you know, just with the agentic bot. I think, I think there's going to be a place for companies to win market share by providing personal service. So I think, I think that's one of the ways the pendulum is going to swing back.

Chuck Kraus: All right. What's your, what's your second prediction for the year? Well, I think that it, so I'm going to bring it over to the, to the law firm side of things. I think we're going to see an increase in experiment with, you know the agentic law firm, right?

Brian Elliott: The, you know, law firm is trying to. not replace associates or take the human out of the loop, but deliver more services to their clients at a higher level of efficiency. I think most of those experiments are going to yield lukewarm results. But I think that over time, we're going to find the winners in that process that are going to emerge.

Chuck Kraus: I think we spoke earlier, you and I both use a number of different tools in our practice. And there are more and more every day. There are hundreds of legal AI tools that are available today. And more every time you look, more come out.

Brian Elliott: The winners are going to start to surface throughout 2026. And we're going to see the tools that have staying power and can help lawyers and law firms deliver results to their clients more efficiently with speed, which I think is really where it comes down to. So that's one half of the equation. The other half of the equation, I think what we're going to see in 2026 is an increase in the dependency on AI tools by our clients in order to, I wouldn't say circumvent the law firm, but maybe delay that first call.

Chuck Kraus: So 10 years ago, lawyers would get a call on the first instance of any inkling of the raising of a legal potential issue. I think in 2026 and beyond, it's going to be, we'll talk to the law firm after we have the opinion of our various AI tools that have helped us frame that legal issue and put it in context that we can then deliver to an outside lawyer. I think that's exactly right. I heard one comment, I think, talking about it in terms of the causation will increase.

Brian Elliott: That is, the need will increase before they're reaching out to call the law firm. That's good. I totally agree. My second prognostication for the year will be the return of the public company, or as SEC Chair Atkins has said, make IPOs great again.

Chuck Kraus: I think you're seeing a confluence of a number of events, one of which is there are fewer public companies today than there have been in the US in sort of any time in history. That's for a bunch of reasons, but I think you're seeing a very concerted effort by regulators, by legislatures to remedy that. The opening of the Texas Stock Exchange, I think, is also targeting that need with the southeastern quadrant of the US and all these private companies that are PE-backed that need an exit. I think you're going to see some real regulatory change that's going to smooth and lessen the burden for public companies.

Brian Elliott: So hopefully... more and more companies accessing the public capital markets. Yeah, I mean, a little bit more diversity across the or concentration across the market might help, right? We've got, you know, nearly half of the all market capital is allocated to the top 10 companies in the S&P 500.

Chuck Kraus: That's unsustainable. It's at historic levels, right? Part of it is, you know, getting, you know, is broadening that base, right? Getting more exciting companies and more investor attention downstream.

Brian Elliott: So we'll see how that all unfolds. I'm excited about the, obviously, the Texas Stock Exchange and how that's going to impact, especially Texas capital markets in 2026. So we'll wait and see. Yeah.

Chuck Kraus: Over to you. What's your second prediction? Well, I think they, so carrying on my sort of doom and gloom, you know, assessment of 2026, I think that it's not just going to be about real estate. I think that we're going to have distress throughout the corporate market.

Brian Elliott: I think, you know, access to capital is going to continue to tighten. And I think that, you know, my prediction is that interest rates will stay high, even though, you know, a majority of the federal, of the Fed is, you know, has their predictions saying that they will, you know, lower rates in 2026. I don't think that's going to happen. And it's going to, it's going to be due to a couple of reasons, but, and we can get into that probably off, off this call.

Chuck Kraus: But I think that the reality is interest rates are going to be a major issue in 2026 across the market, right? And then we still have tariffs that are just battering, you know, importers, right? We just had in the news, Jim Beam has announced that they're going to be shutting down distilling at one of their main locations for the entirety of 2026. And that's got a lot to do with the tariff impact on their business, right?

Brian Elliott: And the inability to sell, especially into Canada, because Canadians have just like rejected American whiskey, right? So even though the tariffs have, you know, normalized to some extent, it's just a, there's an attitude and that has ripple effects to the market. Then you've got this, the issue with Saks Fifth Avenue has got a hundred million dollar coupon that's due at the end of the year. There, you know, there's rumors that they're, you know, heading toward bankruptcy.

Chuck Kraus: That's if, if that happens, that that's going to put a lot of pressure on the luxury segment of retail, which then, you know, trickles into, you know, department store and, you know, commercial real estate. And there's just, it's just all connected, right? So I think that there's a, there's going to continue to be pressure in, in, in, in credit and access to capital. I think that even if, you know.

Brian Elliott: Even if lending does free up and there's more money in the system, I think that credit standards are going to tighten, and I think that it's going to be difficult to come across dollars. So I would say that if you're planning on expansion or accessing the debt markets in 2026, start early. Don't wait until maturities. Get your ducks in a row and then start that conversation months and months and months ahead of when you think you're going to need the access to the capital.

Chuck Kraus: Yeah, that's totally right. I think my last prognostication for the year would be we're going to continue to see there's going to be real effort put into redomestications into the state of Texas and more companies choosing to launch from the state of Texas rather than from the state of Delaware. I think when you look back and you count the costs of some of this litigation that we've been talking about, I think it's going to lead investors and boards to just really look seriously at the state of Texas as a better choice, particularly where capital is so constrained. And you're spending millions of dollars fighting these suits that just can't happen under the legislation that we have now in the state of Texas.

Brian Elliott: Yeah, I mean, if you take a look at some of the some of the stats that that I looked at this year is, you know, 85 percent of the of the cases that were filed in the Texas, the new Texas business courts that were just brought online, 85 percent of them were resolved within six months. Right. And then a significant portion were resolved within 90 days. So it it puts a you know, the courts are reacting and saying, like, we're going to do this on a on a rocket docket.

Chuck Kraus: We're going to speed these things through. We're not going to let the cases die in the traditional cadence of of clogged court systems. So that's that's one one very positive, positive aspect. I mean, then you look at the rest of what Texas has to offer.

Brian Elliott: Right. It's still relatively low cost of living compared to the rest of the country. No, no personal income taxes. Like, it's just still a good a good place to relocate.

Chuck Kraus: And I agree with you. I think we're going to see more. I was looking at gasoline prices just before the holiday here. We're just a snick under three dollars a gallon in in Texas.

Brian Elliott: Apologies to our friends in California, where I think we're we're hovering right around five dollars for the same molecules. So. Yeah. And, you know, a lot of that has to do with that's that's taxes and legislation more than anything else.

Chuck Kraus: It's a you know, we could compare, you know, Texas and California all day long and have a good time doing it. Exactly. All right, Brian, any close. I think we're going to see you.

Brian Elliott: We're going to see you. and comments? Look, I think 2025 was a busy year for Texas and Texas business law. I think 2026 is going to be the same.

Chuck Kraus: So buckle up and get ready for the ride. That's right. We're here to serve. Brian and I are both exploring ways that we can adapt to all of these changes in our practice, be more efficient, deliver more value for clients.

Brian Elliott: And we're thankful for all the listeners who are liking and following. If you have suggestions for topics to cover or guests you think we should speak to, please let us know at yallstreetatscalefirm.com is the address. Thanks very much. We'll talk to you soon.

Chuck Kraus: For more insights and updates, visit www.scalefirm.com or follow us on LinkedIn. .