Structuring the investmenti Type of investment
Investment in real estate under Italian law may occur either through an asset deal, where the investor acquires, directly or through vehicles, real estate or a share deal, where the investor, (directly or through vehicles), acquires an interest in a company or an investment fund that owns real estate.
Asset deals (that are not structured as an acquisition of a going concern), are usually simpler than share deals, as the purchaser acquires only the real estate property without liabilities or contracts, except for a lien over the property which may derive from certain liabilities over the property (e.g., certain tax liabilities), and for certain contracts that are transferred by operation of law together with the property (e.g., lease agreements, insurance agreements, agreements with janitors). Therefore, the relevant legal due diligence for the acquisition of an Italian property may be focused only on title to the real estate property and encumbrances on it, payment of certain indirect taxes related to the property, and compliance of the property with applicable laws and lease agreements.
Share deals, instead, entail that the investor acquires an interest in the entity that owns the real estate property. This investment structure usually requires a broader due diligence on the whole entity, including on its assets and liabilities.
With respect to acquisition formalities, asset deals are generally more complicated than share deals. Indeed, asset deals may trigger the application of mandatory or voluntary pre-emption rights, need to comply with certain formalities provided by law, (e.g., the transfer deed shall be notarised, and it must include certain mandatory provisions). They are also subject to a VAT and transfer taxes regime depending on the features of the real estate property being sold.ii Investment vehicles
Investing in Italian real estate by means of Italian vehicles allows investors to benefit from the following: limitation of liability (except for cases in which the limitation of liability may be affected by how the vehicle is managed and operated); the easy set-up of 'no recourse' financing; sharing (indirect) of ownership in the real estate property (and relevant risks) among multiple investors (who may be granted with different rights and powers both in terms of distribution of dividends and of corporate powers); and the availability of a local asset manager responsible for the management of the investment and the implementation of the business plan.
In general terms, investment vehicles may be set up specifically for the acquisition of real estate property, or the investor may indirectly invest in real estate property by acquiring an interest in investment vehicles.
The investment vehicles that may be taken into consideration when planning an investment can be divided in to the following two main groups: non-regulated vehicles and regulated vehicles.Non-regulated vehicles
The most common non-regulated investment vehicles are corporate vehicles: real estate joint stock companies or limited liability companies.
Non-regulated vehicles allow investors to directly manage their investment. This is because they may make, directly in the shareholders' meeting or through the board of directors, all the decisions concerning the management and operation of the vehicle.
Listed real estate joint stock companies may benefit from income tax exemption on profits deriving from lease activity, if certain requirements are met (that mostly concern shareholding and business activity).Regulated vehicles
Regulated real estate investment vehicles can either be corporate vehicles as SICAFs (i.e., joint stock companies with fixed capital), or contractual vehicle mutual funds. Both of these vehicles qualify as alternative investment funds pursuant to the common EU legal framework based on the directive on alternative investment fund managers (AIFMD).
Compared with non-regulated vehicles, regulated vehicles may benefit from the application of a favourable tax regime and from management by a specialised asset manager. On the other hand, regulated vehicles:
- generate significant additional costs regarding management and compliance;
- are overviewed by regulatory authorities; and
- have a limited scope (the investment policy and the activities that these vehicles can pursue are generally limited).
Therefore, regulated vehicles are generally only used for transactions above a certain size.
Regarding the managing powers of the investors with respect to regulated vehicles that are mainly set up to collect capital contributions by a variety of investors, Italian law provides for a general principle pursuant to which an investor in a regulated vehicle should be a 'passive' investor. Therefore, the management of the vehicle must be carried out independently by a regulated management company, while investors can be involved in certain main investment decisions. Such involvement is generally regulated under the fund rules or the by-laws of the vehicle (depending on the kind of vehicle), which provide for advisory committees or similar bodies that must give their opinion (binding or non-binding), on certain matters. Where a vehicle is set up in corporate form, the investor may benefit from certain prerogatives granted to the shareholders (e.g., approval of the balance sheet, amendments of the by-laws).
The set-up of funds reserved for professional investors is a very smooth process as it does not require any authorisation from regulators, on the contrary to the set-up of SICAFs, which is less immediate as they must be authorised by the regulators. The funds and the SICAFs are subject to the same regulatory framework, but SICAFs must also comply with ordinary corporate law provisions.
Italian regulated vehicles must be managed by an Italian asset management company. However, pursuant to the AIFMD management passport, Italian investment funds may also be set up and managed by asset management companies based in other EU countries.
SICAFs can be externally managed by an asset management company (such as a fund) but can also be internally managed. In this latter case, the SICAF generally has a governance structure that reflects the presence of 'business' shareholders (which participate, for management purposes, providing the SICAF with its management and organisational structure and with the financial resources needed to carry out the business and meet the regulatory capital requirement) and 'investor' shareholders (who are granted the voice rights generally recognised to the investors of the funds).
Italian law does not contain specific restrictions on ownership, or on investment, in real estate, except for the 'reciprocity principle'.
According to a (seldom applied) provision of Italian law, non-Italian investors are allowed to invest in Italy only if their country of origin allows equivalent rights to Italian investors, or if their country of origin has an international treaty with Italy that permits such investments. While this rule is not relevant for European investors, in some residual cases involving non-EU investors, it is worth checking the application of this principle, and if necessary, setting up a specific investment structure, which is at any rate often widely used for efficiency purposes. In fact, most foreign investors use EU platforms or Italian vehicles, mainly real estate funds.