Real Estate Gazette: Navigating complexity in diversified markets

ISSUE 23 | www.dlapiperrealworld.com REAL ESTATE GAZETTE ALTERNATIVE LENDING INTERNATIONAL REAL ESTATE FINANCE: AVOIDING CROSSCOLLATERALIZATION BY TAKING AN INDIVIDUALIZED APPROACH ISLAMIC FINANCE AND REAL ESTATE: THE PERFECT MATCH LOGISTICS REAL ESTATE FOR LOGISTICS—THE CASE FOR PORTUGAL OFFICES SEEING AND MANAGING RISKS IN UK LEASES HOTELS REFORM OF LAND LAW SYSTEMS IN MOROCCO RECENT TRENDS IN RESORT MIXED USE DEVELOPMENT SOUTHERN EUROPE SHOPPING MALLS IN SPAIN: THE RETURN OF AN ACTIVE MARKET CENTRAL AND EASTERN EUROPE A BREATH OF FRESH AIR FOR CZECH MORTGAGE LAW GERMANY VERSUS UK HIDDEN PROSPECTS—INVESTING IN SECONDARY LOCATIONS IN GERMANY NAVIGATING COMPLEXITY IN DIVERSIFIED MARKETS SPECIAL ISSUE: DLA PIPER’S 1ST EUROPEAN REAL ESTATE SUMMIT 2 | REAL ESTATE GAZETTE Although this publication aims to state the law at 31 January 2016, it is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. If you would like further advice, please speak to Olaf Schmidt, Head of International Real Estate, on +39 02 80 618 504 or your usual DLA Piper contact on +44 (0) 8700 111 111. DLA Piper is an international legal practice, the members of which are separate and distinct legal entities. For further information please refer to www.dlapiper.com. Copyright © 2016 DLA Piper. All rights reserved. Rita Jacques – Paris +33 1 70 75 77 27 [email protected] Thomas Dick – London +44 20 7796 6514 [email protected] Mushfique Khan – Dubai +971 4 438 6233 [email protected] Daan Arends – Amsterdam +31 (0)20 5419 315 [email protected] Wouter Kolkman – Amsterdam +31 (0)20 5419 337 [email protected] Luís Filipe Carvalho – ABBC law firm, Lisbon +351 21 358 36 20 [email protected] Tânia Gomes – ABBC law firm, Lisbon +351 213 583 620 [email protected] Ben Barrison – London +44 (0) 207 796 6184 [email protected] Myriam Mejdoubi – Paris +33 (0) 1 40 15 24 96 [email protected] Christophe Bachelet – Casablanca +212 (0)522 641 623 [email protected] Lynn Cadwalader – San Francisco +1 415 615 6050 [email protected] Rutger Oranje – Amsterdam +31 (0)20 5419 810 [email protected] Janneke Berendsen – Amsterdam +31(0) 20 5419 297 [email protected] Ignacio Antón – Madrid +34 917 887 304 [email protected] Denise Hamer – London/Vienna +44 20 7796 6466/+43 1 531 78 1452 [email protected] Zuzana Slováková – Prague +420 222 817 501 [email protected] Marek Strádal – Prague +420 222 817 401 [email protected] Aleksandra Kozłowska – Warsaw +48 22 540 74 07 [email protected] Michael Neumann – Horten, Copenhagen +45 3334 4267 [email protected] Camilla Wollan – Oslo +47 24131659 [email protected] Heiner Feldhaus – Cologne +49 221 277 277 253 [email protected] ISSUE 23 CONTRIBUTORS ISSUE 23 | www.dlapiperrealworld.com REAL ESTATE GAZETTE ALTERNATIVE LENDING INTERNATIONAL REAL ESTATE FINANCE: AVOIDING CROSSCOLLATERALIZATION BY TAKING AN INDIVIDUALIZED APPROACH ISLAMIC FINANCE AND REAL ESTATE: THE PERFECT MATCH LOGISTICS REAL ESTATE FOR LOGISTICS—THE CASE FOR PORTUGAL OFFICES SEEING AND MANAGING RISKS IN UK LEASES HOTELS REFORM OF LAND LAW SYSTEMS IN MOROCCO RECENT TRENDS IN RESORT MIXED USE DEVELOPMENT SOUTHERN EUROPE SHOPPING MALLS IN SPAIN: THE RETURN OF AN ACTIVE MARKET CENTRAL AND EASTERN EUROPE A BREATH OF FRESH AIR FOR CZECH MORTGAGE LAW GERMANY VERSUS UK HIDDEN PROSPECTS—INVESTING IN SECONDARY LOCATIONS IN GERMANY NAVIGATING COMPLEXITY IN DIVERSIFIED MARKETS SPECIAL ISSUE: DLA PIPER’S 1ST EUROPEAN REAL ESTATE SUMMIT ISSUE 23 • 2016 | 3 We would like to welcome all our readers to this special issue of DLA Piper’s Real Estate Gazette, which presents material tied to the specialized topics under discussion at our first European Real Estate Summit, to be held at the Landmark Hotel in London on Tuesday 1 March 2016. The theme of our Summit, “Navigating Complexity in Diversified Markets”, acknowledges the challenges to be faced in allocating money in a European market which is becoming increasingly diverse, both geographically and from an asset class perspective. In this issue of the Gazette, we give our readers an insight into a huge variety of topics that concern leading experts from the European real estate industry. Since the onset of the global financial crisis of 2007/8 changes in the way real estate is financed and the drivers behind that have been a key concern. Our first International article (page 6) examines a recent trend in pan-European refinancing, where deals are structured on an individualized approach, with no requirement for cross-collateralization. Although acknowledging that this approach places more risk on the lenders, the authors predict that it is likely to be used more often in the context of a borrower-friendly market. Articles from the Middle East (page 12—highlighting Islamic finance as a viable alternative to conventional debt funding that facilitates the use of capital from outside Europe), and the Netherlands (page 14—discussing recent case law developments affecting the VAT liability of real estate investment funds) conclude this section. We go on to consider topical areas of debate in a number of asset classes, namely, Logistics, Offices, Hotels, and Residential. Featured articles include an assessment of Portugal’s logistics sector (page 16); a discussion of risk in UK office leases (page 18); a summary of the reforms to the land law system in Morocco and its rapidly developing hospitality sector (page 20); and an examination of the restrictions on social housing in the Netherlands (page 25). From a geographical perspective, the outlook appears to be bright for Southern Europe, with Spain forecasting the return of an active market in shopping mall development (page 27). There is good news too from Central and Eastern Europe with significant increases in CEE/ SEE loan and loan portfolio sales (page 28) and the Czech Republic announcing changes to the way in which mortgages are regulated that should result in greater flexibility (page 30). In Northern Europe, we look at the importance of pension funds in the Danish investment market (page 34), some regulatory issues in Norway (page 36) and conclude with a look at the attractions and pitfalls of investing in secondary locations in Germany (page 38). It is clear from the breadth of material featured in this issue, and the topics scheduled for debate at our Summit, that the current real estate landscape in Europe is challenging, but it is also vibrant, dynamic and ripe with opportunities. We look forward to keeping you abreast of developments. Olaf Schmidt, Head of International Real Estate A NOTE FROM THE EDITOR “ ” The real estate landscape in Europe is challenging, but also vibrant and dynamic. The twenty-third issue of the DLA Piper Real Estate Gazette highlights issues relating to allocating money in an increasingly diverse European market. 4 | REAL ESTATE GAZETTE CONTENTS ALTERNATIVE LENDING—ROOM FOR GROWTH? INTERNATIONAL 06 INTERNATIONAL REAL ESTATE FINANCE: AVOIDING CROSSCOLLATERALIZATION BY TAKING AN INDIVIDUALIZED APPROACH 08 BEPS AND REAL ESTATE INVESTMENT FUNDS: WHAT ARE SPONSORS TO DO? MIDDLE EAST 12 ISLAMIC FINANCE AND REAL ESTATE: THE PERFECT MATCH THE NETHERLANDS 14 VAT AND THE MANAGEMENT OF EUROPEAN REAL ESTATE INVESTMENT FUNDS LOGISTICS—CREATING A EUROPEAN PLATFORM PORTUGAL 16 REAL ESTATE FOR LOGISTICS—THE CASE FOR PORTUGAL OFFICES—DEVELOPING REAL ESTATE FOR MODERN END USERS UK 18 SEEING AND MANAGING RISKS IN UK LEASES HOTELS—A SAFE HAVEN OR OPEN TO DISRUPTION? MOROCCO 20 REFORM OF LAND LAW SYSTEMS IN MOROCCO USA 22 RECENT TRENDS IN RESORT MIXED USE DEVELOPMENT RESIDENTIAL AND PRS—A NEW DESTINATION FOR INSTITUTIONAL MONEY THE NETHERLANDS 25 INVESTING IN THE DUTCH HOUSING MARKET 08 18 22 ISSUE 23 • 2016 | 5 SOUTHERN EUROPE—A RETURN TO NORMALITY? SPAIN 27 SHOPPING MALLS IN SPAIN: THE RETURN OF AN ACTIVE MARKET CENTRAL AND EASTERN EUROPE—OPPORTUNITIES FOR BARGAINS? CEE/ SEE 28 BREAK OUT THE SCHNAPPS AND VODKA: NON-PERFORMING LOANS IN CEE AND SEE CZECH REPUBLIC 30 A BREATH OF FRESH AIR FOR CZECH MORTGAGE LAW POLAND 32 CORPORATE INCOME TAX EXEMPTION FOR FOREIGN INVESTMENT FUNDS—NEW DEVELOPMENTS NORTHERN EUROPE AND SCANDINAVIA—SAFE HAVENS WITH A FUTURE? DENMARK 34 THE IMPORTANCE OF PENSION FUNDS IN THE DANISH INVESTMENT MARKET NORWAY 36 CAN BUYING NORWEGIAN COMMERCIAL PROPERTY TRIGGER NORWEGIAN FINANCIAL REGULATION? GERMANY VERSUS UK—WILL SECONDARY LOCATIONS EVER REALLY MAKE IT? GERMANY 38 HIDDEN PROSPECTS—INVESTING IN SECONDARY LOCATIONS IN GERMANY ISSUE 23, 2016 28 30 36 6 | REAL ESTATE GAZETTE The security package is the principal instrument by which lenders try to mitigate the risk of default by borrowers. Typically, when refinancing the acquisition of a portfolio of assets, lenders will adopt a global approach and take full advantage of the security package by requiring that security interests be pooled. This is achieved by each special purpose vehicle (SPV) granting security interests which secure not only their own obligations but also those of the other SPVs of the portfolio, subject always to rules about corporate benefit and relevant specific local rules. However, DLA Piper has seen a move away from this standard approach in a recent pan-European refinancing. In this transaction, our client was willing to refinance a portfolio of 14 logistics assets located in Belgium, France, Germany, Portugal, the Netherlands and Spain indirectly owned by a Luxembourg holding company, and, during the tender offer for financing, expressly made the point to lenders that it was willing to have absolutely no cross-collateralization in the portfolio so that it could limit exposure and, among other factors, avoid falling within the scope of the thin capitalization rules. The transaction was structured on an individualized approach, with a loan being provided to the Luxembourg holding company the proceeds of which were lent by that holding company to its direct or indirect subsidiaries (11 refinanced SPVs) through intragroup loans. The limitation of the secured obligations The absence of cross-collateralization mainly affected the structuring of the security package granted by the refinanced SPVs under the intragroup loans as well as their direct shareholders. Our client’s goal was achieved by limiting the secured obligations covering the sureties granted by the refinanced SPVs (whether directly to the lenders or to the Luxembourg company which in turn assigned them to lenders) and their shareholders. In order to achieve this limitation, two main categories of secured obligations were distinguished: the global secured obligations and the unitary secured obligations. The task was made easier by the fact that the main loan was granted at the holding company level. Therefore, it made sense that the security interests granted by the holding company secured the global obligations whereas those provided by a refinanced SPV, and as the case may be, by its shareholders, only covered the unitary secured obligations relating to the relevant property held by the SPV, or as the case may be by one or several SPVs directly owned by the shareholder. The definition of the unitary secured obligations was also designed to offset the lack of cross-collateralization. The same terms which would usually apply to limit the extent of the crosscollateralization were included to provide that the unitary secured obligations were limited to an amount not greater than the amount of the intragroup loan granted to a refinanced SPV and reduced by the amount of each repayment made, whether voluntary or mandatory. Inevitable global assessment and provision of a limited event of default When negotiating events leading to default and cases of mandatory repayment of the main loan, the concern was to exclude the possibility that an event affecting a single property would lead to the obligation to repay the entire loan. This was important in order to avoid a domino effect, with each intragroup loan providing for a specific event of default in ALTERNATIVE LENDING—ROOM FOR GROWTH? | INTERNATIONAL the event of an acceleration or mandatory repayment of the main loan in full. The approach perhaps reached its limits while discussing the case of an event of default affecting several properties at the same time. On the one hand, it is difficult to argue that the occurrence of such an event should not be tackled at the portfolio level. On the other INTERNATIONAL REAL ESTATE FINANCE: AVOIDING CROSS-COLLATERALIZATION BY TAKING AN INDIVIDUALIZED APPROACH RITA JACQUES, PARIS ISSUE 23 • 2016 | 7 ALTERNATIVE LENDING—ROOM FOR GROWTH? | INTERNATIONAL hand, it was not in the interest of the borrower to allow the entire transaction to be put at risk every time that more than one property was affected. The solution adopted was to introduce a materiality threshold through a specific event of default. Under this threshold (cumulatively, one third of properties, one third of the main loan and one third of the outstanding amount of the intragroup loans), an event affecting the relevant properties would be considered a limited event of default. It was agreed that the occurrence of such an event, and receipt of a notice of limited default sent by the agent, would only require the borrower to make early repayment of the outstanding amount up to the allocated amount relating to each property to which the notice related. However, should the main borrower breach its early repayment obligation; the event would be considered an ordinary event of default. Likewise, if the threshold of one third was exceeded, an event affecting the relevant properties would be considered an ordinary event of default leading to repayment of the main loan and as a result to repayment of the intragroup loans. The impact on the subordination The individualized approach was taken to its logical conclusion by the provision for early termination of the subordination agreement, under which the subordination period was to end when all sums due were repaid to the lenders. However, specific terms were inserted to provide that the subordination period would end when the unitary secured obligations relating to a relevant property were finally reduced to zero. On this date, the subordinated debt ceases and therefore, the relevant refinanced SPV, its shareholders and creditors (parties to the agreement as subordinated lenders) are no longer affected by the subordination. Once the relevant debts are repaid, they no longer fall within the scope of the subordination and are entitled to pay the former subordinated debt or be repaid, as the case may be. It is submitted that the approach taken in this case, while certainly placing more risk on the lenders, is likely to be used more often in the context of a borrowerfriendly market but such agreements must be very carefully worded in order to prevent cross-collateralization being reintroduced through the back door. “ An individualized approach is likely to be used more often in the context of a borrower-friendly market ” 8 | REAL ESTATE GAZETTE I ntroduction The final reports on the G20/ OECD Base Erosion and Profit Shifting project (BEPS) were issued on 5 October (referred to in this article as “the Reports”) after a two-year consultation period during which 62 countries and many other stakeholders (such as the World Bank, the IMF and many trade associations) participated. The Reports represent a multilateral approach to common issues of concern in international taxation law and practice. They offer countries recommended tax measures to implement under domestic law so as to create a more uniform approach to these issues of concern. Widespread implementation in domestic law of the Reports’ recommendations has not yet begun, but the situation is in flux and tax developments are moving swiftly. Some countries have acted unilaterally and adopted BEPS-like proposals already, such as the UK’s “diverted profits tax” (effective 1 April 2015), while the European Union has introduced a “main purpose” test and an anti-hybrid element into its Parent/Subsidiary Directive. This article explores the principal features of those Reports which impact on real estate funds and offers sponsors recommendations for action. Real estate investment funds take differing forms because of the variety in underlying assets (direct interests in property, mortgages, development land or buildings as against infrastructure or renewable energy, equity in a real estate business) and in the investor base (individual, pension fund, corporate, charitable endowment, insurance company, sovereign—whether resident or non-resident, taxable or tax-exempt). Most funds seek simply to avoid adding tax costs to the taxes that would be paid by fund investors if they had invested directly rather than via the fund; and indeed the stated purpose of REITs is to offer investors in a widely held vehicle similar tax results to those achieved by a BEPS AND REAL ESTATE INVESTMENT FUNDS: WHAT ARE SPONSORS TO DO? THOMAS DICK, LONDON ALTERNATIVE LENDING—ROOM FOR GROWTH? | INTERNATIONAL ISSUE 23 • 2016 | 9 limited number of investors participating in a special purpose partnership. Many countries accept this “neutrality principle” that funds should not give rise to a materially worse tax result for investors, compared with their direct investment in the underlying asset. Because much fund investment is directed at countries which are politically and legally stable, it can be expected that a positive amount of taxes will generally be paid on a cumulative basis; in short, real estate funds do not operate as tax havens for their investors. The three Reports which are most likely to affect the real estate fund industry are: “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances” (Action 6); “Neutralising the Effects of Hybrid Mismatch Arrangements” (Action 2); and “Limiting Base Erosion Involving Interest Deductions and Other Financial Payments” (Action 4). Action 6 tax treaties Regarding double tax treaties, many funds establish the fund vehicle in a country where it can benefit from a treaty with the country of operation (source) so that the investment’s profits or the return on debt is paid without source country withholding tax. The Action 6 Report demands that such a vehicle’s entitlement to treaty benefits depends on its satisfying certain minimum factors, such as being publicly listed or demonstrating that a proportion of its owners reside in the vehicle’s home state under the “limitation on benefits” rule; or alternatively on its establishing bona fides under a “principle purpose test”. This Report, however, agrees with source countries granting treaty benefits to certain “mainstream” funds irrespective of their listing or residence of their ultimate owners. Thus, if funds are “widely held, hold a diversified portfolio of securities and are subject to investor-protection regulation in the country in which they are established” (CIV Funds), they are entitled to treaty benefits in their own name. This category 10 | REAL ESTATE GAZETTE ALTERNATIVE LENDING—ROOM FOR GROWTH? | INTERNATIONAL is considered to include UCITS funds and diversified/widely held “funds of funds”. Other funds, such as most private equity, hedge funds, real estate and infrastructure funds, and mortgage CLOs/ securitizations will need to satisfy the new treaty limitations described above, on the theory that these non-CIVs are often used by investors specifically to obtain treaty benefits that would not be available in a direct investment. This may cause material difficulties for many funds, particularly of smaller size. The Report does acknowledge that, if a non-CIV Fund is considered fiscally transparent by the source country, treaty benefits will often be granted to those investors who qualify in their own right and provide sufficient documentation. Action 2 hybrid mismatches as to payment made to related persons Regarding hybrid mismatches, some sponsors introduce debt instruments into the capital structure of fund vehicles or SPVs which have a different tax character in the hands of the holder(s). This is often done to mitigate entity level taxation (by means of an interest deduction), combined with a deferral or exemption of income in the hands of the holder(s). An example is the issuance by a Luxembourg company of “participating equity certificates” (PECs) to related US investors, which are treated as debt by the Luxembourg company (whose interest expense is deductible on accrual) and preferred equity by the investors (who are taxable generally only upon receipt of payment). The Action 2 Report encourages countries to counteract this mismatch on hybrid securities held by related persons by denying the party making the payment a deduction for interest. If that does not happen, the payee jurisdiction is encouraged to force holders to take the income into account currently. REITs and other entities which provide for a deduction for dividend payments are not considered as generating hybrid payments for the purposes of these rules, and highly leveraged investment vehicles that are “subject to special regulation and tax treatment under the laws of the establishment jurisdiction” fall outside their scope in certain circumstances (ie when the investors can be expected to take the yield into account currently). Action 4 interest deductions The core recommendation of the Report on interest deductions is to limit the deduction of net interest expense by a member of a multinational group (payable to any party) to a fixed percentage of that member’s EBITDA, within a range of 10–30 per cent. If the group of which the entity is a member has a higher ratio of net interest/EBITDA on its debt owed to third parties, the entity may deduct its net interest expense up to this higher ratio. To address earnings volatility, the Report offers the option of carrying forward or back disallowed interest (or interest capacity). While Germany and the United States have already implemented EBITDA-based limitations, other jurisdictions such as the UK, Ireland, Luxembourg and the Netherlands would undergo a significant transition damaging to their real estate investment industry were they to adopt the Action 4 Report’s recommendations. If implemented, these proposals would be critical for real estate and ISSUE 23 • 2016 | 11 “ Sponsors should continue to form funds in the most tax-efficient way under the current laws and treaties ” ALTERNATIVE LENDING—ROOM FOR GROWTH? | INTERNATIONAL infrastructure funds seeking to deduct interest expense on related-party debt (such as shareholder loans), and also for traditional leveraged buyout funds used to acquire real estate businesses. Other Reports Because of the frequency of payments to related (and often non-resident) parties in the fund management industry, the Report on transfer pricing documentation and reporting (Action 13) is highly relevant to sponsors. Preferential regimes or vehicles relating to real estate were not considered in connection with the investigation into harmful tax practices (Action 5). Recommendations for action The real estate investment fund industry would be turned on its head if all the jurisdictions which favour it (eg the Netherlands, Luxembourg, Ireland, Jersey) were immediately to adopt all of the recommendations described above. Many of these jurisdictions are likely to defer implementing, or not implement, some of these recommendations. However, sponsors will need to approach this new environment with care. It is advisable for sponsors to continue to form funds in the most tax-efficient way under the current laws and treaties. Jurisdictions that hitherto have been hospitable to fund formation are unlikely to be early adopters, and it is better to form a fund knowing it may need to be amended, that not to form one at all. However, the sponsor should ensure that the fund documentation gives it maximum discretion to restructure the fund in the event of changes to the laws or treaty provisions governing the material elements underlying the intended tax results. While investors may not enjoy participating in a restructuring of an investment vehicle, or possibly even the redemption of their ownership interests, they may prefer that possibility to the risk of owning an illiquid investment in a fund suffering unanticipated taxes. Second, a sponsor must understand thoroughly the technical underpinnings of its fund’s tax planning so that it can decide quickly in response to a tax law or treaty change whether the fund needs to be restructured, and if so, whether in whole or part. Appropriate tax advice is required. Such a tax report will highlight those elements of a fund structure which are vulnerable under BEPS, but should also concentrate thinking about standard structural elements and any alternatives that may be available. Lastly, sponsors need either to commission a tax advisor to maintain a watching brief on changes to the tax laws and treaties of the relevant jurisdiction(s), or do so themselves. Conclusion Sponsors and their advisors cannot ignore the influence of BEPS, but real estate funds must be formed while we await the reactions of countries to the BEPS recommendations. Continuity, with flexibility, combined with a thorough understanding of the technical underpinnings of each element of the tax planning is required; as well as the maintenance of a watching brief on changes to tax laws and treaties relevant to the structure. 12 | REAL ESTATE GAZETTE I ntroduction The Islamic finance industry is currently estimated to have assets of around US$ 2 trillion. For many years, Islamic finance has relied heavily upon real estate as an investable, tangible asset class on which to base its financial structures. This began in the residential housing sector, but quickly moved into commercial real estate with this sector now a key focus for Islamic investors across the world. Commercial real estate has been a major target for Islamic funds and investors due to the existence of rental guarantees, steady demand and increasing rental returns. Further developments may be seen in this sector due to a broadening view of social infrastructure to include healthcare, education and social housing. There is a natural match between the Islamic finance model and the acquisition and development of real estate assets and this provides a flexible tool which can be used for a wide range of real estate financings. This ranges from residential mortgages to large scale financings of prime London real estate such as the acquisition of Chelsea Barracks, the construction of The Shard and the redevelopment of Battersea Power Station to student housing and logistics across the UK (and into Europe). Islamic investors have customarily preferred investing in prime real estate in the UK and Europe. In view of the uncertainty which continues to stalk some Western markets, there have been increasing capital flows from these investors. This has created an ideal opportunity for Islamic finance to provide a viable alternative to conventional debt funding, which can be adapted to suit the size and tenor of the financing, to fit within local tax laws and which may even be used alongside conventional finance. Shari’a-compliant real estate funds Currently, there is no uniform approach to the structuring of Shari’a-compliant funds. It will depend on the identity of the Islamic investors and how strict/ conservative they are in terms of their Shari’a requirements. The tax efficiency of a real estate fund structuring will also influence the structure very heavily. Some of the areas that tend to distinguish a Shari’a-compliant real estate fund from a conventional one include: • The underlying investment (ie the properties) must be used for Shari’acompliant purposes. This means that any real estate where haraam (prohibited) activities are carried out would need to be avoided (casinos, sales of pork and alcohol are obvious ones, but conventional banking, insurance, defence and weaponry are also prohibited). However, if the portion of haraam income is sufficiently nominal (often 5 per cent or less) and is segregated or purified in some way, then it is sometimes possible for an investment to be made. • In general terms, all Islamic investors into the fund would have to be treated equally. This means that any losses should be borne equally (and preference shares can therefore be problematic). • If the fund is leveraged, some Islamic investors will insist that such leverage also needs to be Shari’a-compliant. The availability of such Islamic financing, Islamic swap products and/ or tax or regulatory constraints in the conventional markets can present a few challenges here. • However, Islamic funds which use conventional loans to leverage ALTERNATIVE LENDING—ROOM FOR GROWTH? | MIDDLE EAST ISLAMIC FINANCE AND REAL ESTATE: THE PERFECT MATCH MUSHFIQUE KHAN, DUBAI ISSUE 23 • 2016 | 13 acquisitions have been able to make the Islamic investors comfortable that such leverage does not directly affect the returns on the Islamic part of the investment structure. In this context, it has been possible to use an ijara (leasing) structure in order to provide the requisite levels of segregation from the returns to the Islamic investors. • The fund will often have its own Shari’a supervisory board that provides independent supervision of the fund and its investment activities. Relevant Islamic financing techniques Commodity Murabaha This structure enables Shari’a-compliant funding for customers who require a cash sum to be advanced to them. In general terms, the financier (typically a bank), either directly or indirectly purchases an asset at market value (for spot delivery and spot payment) and then immediately sells that asset at an agreed mark-up sale price to the customer for spot delivery but on a deferred payment basis with an agreed profit element (often calculated using LIBOR as a benchmark). The customer then immediately on-sells that asset at market value to a third party for spot delivery and spot payment so as to obtain the cash proceeds (ie the funding it requires). The end result of this arrangement is that the customer receives a cash amount and has a deferred payment obligation to the financier for the marked-up sale price. The concept of “rolling” commodity murabaha trades has also been developed in recent years as financiers have sought to structure Islamic facilities in a way that replicates the economics of conventional term and revolving facilities. Ijara The ijara contract is Islamic financing’s equivalent of leasing and is often described as a hybrid between an operating lease and a finance lease. In general terms, the financier (typically a bank) will act as lessor and the customer (ie the borrower) will act as lessee. As with murabaha financings, rental payments under an ijara will typically reflect an agreed profit element (again, often calculated using LIBOR as a benchmark) and, as such, comparisons with rentals payable under a conventional finance lease can readily be made. Unlike a conventional finance lease, the obligation to insure and undertake any major maintenance in respect of the leased asset remains with the lessor (as owner) as does the responsibility for settling any ownership-related taxes. However, the lessor will typically appoint the lessee as its service agent and, pursuant to that appointment (documented outside of the ijara contract), require that service agent to take responsibility for discharging all of those obligations. In the context of Islamic fund or investment structures, the ijara contract can also sometimes be used to create a segregated structure that allows conventional loans to be used to leverage acquisitions without affecting the returns on the Islamic part of the investment structure. Conclusion Year by year, Islamic finance is expanding and developing into an important sector of the wider global economy. Though it is still modest in size, nevertheless it is a sector which cannot be ignored by financial institutions. As the world’s Muslim population expands, the demand for Shari’a-compliant products will grow and the sector looks set to thrive and prosper well into the twenty-first century. “ As the world’s Muslim population expands, the demand for Shari’acompliant products will grow ” ALTERNATIVE LENDING—ROOM FOR GROWTH? | MIDDLE EAST 14 | REAL ESTATE GAZETTE VAT AND THE MANAGEMENT OF EUROPEAN REAL ESTATE INVESTMENT FUNDS DAAN ARENDS AND WOUTER KOLKMAN, AMSTERDAM I ntroduction In a recent judgment, the Court of Justice of the European Union (CJEU) ruled that real estate investment funds can qualify as “special investment funds” for the application of the VAT exemption for management of such funds. However, the CJEU went on to confirm that the actual management of properties cannot benefit from the VAT exemption. This article discusses the judgment and assesses its impact. Background of the case The fund management company in this case provided several Dutch real estate investment funds with the following services: a. acting as managing director of the funds; b. carrying our statutory and administrative (executive) tasks; c. property management (ie, handling day-to-day matters); d. carrying out the financial reporting, data processing and internal audit; e. asset management (ie, acquisition and sale of real estate); and f. acquisition of shareholders or certificate holders. The management company did not account for VAT on the fees charged, taking the view that the provided services were VAT exempt under the exemption applicable to “the management of special investment funds”. The Dutch tax authorities did not agree and argued that the VAT exemption only applied to the services e. and f. The Dutch Supreme Court referred to the CJEU the question of whether a company that has been set up by more than one investor (pension funds in this case) for the sole purpose of investing in real estate can qualify as a “special investment fund” within the meaning of the VAT exemption. Furthermore, the Supreme Court questioned whether the property management itself qualifies as “management” of a special investment fund. Real estate investment funds may qualify as special investment funds The CJEU ruled that the nature of the investments held by an investment fund (ie, financial assets or real estate assets) is not relevant for the classification of the fund. A real estate investment fund can therefore qualify as a “special investment fund” within the meaning of the VAT exemption, provided two conditions are met: (i) the real estate investment fund must be subject to specific state supervision in its Member State, and (ii) it must display characteristics identical to collective investment undertakings within the meaning of the UCITS Directive and thus carry out the same transactions or, at least, display features that are sufficiently comparable for them to be in competition with such undertakings. Under the second condition, an investment fund is deemed comparable to collective investment undertakings if several investors purchase participation rights in the fund; if the return on the investments depends on the performance of the investments made by the fund’s managers over the period for which those investors hold those rights; and if the investors are entitled to profits or bear the risk connected with the management of the fund. Actual management of properties cannot benefit from VAT exemption According to the CJEU, the “management of special investment funds” involves the selection and the disposal of the managed real estate as well as the related administration and accounting tasks. The actual management of properties, however, is not deemed specific to the management of a special investment fund in that it goes beyond the various activities connected with the collective investment of capital raised. The CJEU concluded that insofar as the actual management of real estate is intended to preserve and build up the assets invested, its objective is not specific to the activity of a special investment fund but is inherent in any type of investment. Therefore, property management of real estate cannot benefit from the VAT exemption. Impact of the ruling The CJEU ruled that real estate investment funds may qualify, subject to certain conditions, as special investment funds for the purposes of the VAT exemption for management of such funds. Real estate investment funds in certain countries may have already qualified under national law as special ALTERNATIVE LENDING—ROOM FOR GROWTH? | THE NETHERLANDS ISSUE 23 • 2016 | 15 investment funds. As specific state supervision must now be considered a clear condition for the application of the VAT exemption, these funds may lose this classification as a result of this ruling. Since there are discrepancies in national VAT regimes throughout the EU, it is important to verify the VAT consequences in each jurisdiction. Furthermore, the CJEU ruled that a broad range of management services relating to real estate investment funds can benefit from the VAT exemption. The “actual management” of properties however, is not covered by this exemption. As the CJEU did not provide a clear definition of “actual management”, discussions with the relevant tax authorities may be anticipated. In this regard, it should be noted that on 1 January 2017, new VAT rules on the place of supply of real estate services will come into effect. These rules embody the principles of CJEU case law but the new legislation provides more detailed definitions of real estate and some clarity on the distinction between “services connected with immovable property” and other services. In the light of this case, all parties concerned, funds as well as their managers, are advised to reconsider the VAT implications of their activities. Fund arrangements and management agreements should be reviewed to determine the correct VAT treatment, both retrospective and current. 16 | REAL ESTATE GAZETTE REAL ESTATE FOR LOGISTICS—THE CASE FOR PORTUGAL LUIS FILIPE CARVALHO AND TÂNIA GOMES, ABBC LAW FIRM, LISBON Over the last year, the Portuguese real estate market, especially in Lisbon and Oporto, has experienced a growth driven not only by national investors looking for opportunities, but also by foreign investors. Seeking alternative markets for their investments, important international players have recently turned their attention to Portugal, looking for less obvious opportunities, beyond office and residential properties, and focusing on the logistics sector. To take just one example, one of the major real estate players, both in Europe and the United States, has just acquired a portfolio of logistics assets in Portugal which will become part of its European logistics platform, playing a significant role in its strategy and business plan. However, the exceptional growth of the logistics sector in Portugal is due not only to the significant number of real estate transactions which were undertaken by important international players between 2014 and 2015, but also because the logistics market itself increased by 5.3 per cent in 2015 alone, and is now valued at €500 million. These figures propelled Portugal to the 29th position on the World Bank’s Logistics Performance Index (LPI) in 2014. Statistics aside, the law has also LOGISTICS—CREATING A EUROPEAN PLATFORM | PORTUGAL ISSUE 23 • 2016 | 17 LOGISTICS—CREATING A EUROPEAN PLATFORM | PORTUGAL “ The Government wanted to position Portugal as the main gateway for the international movement of goods in the Iberian and European markets ” been playing an important role in the promotion of this sector. Until 2006, there was very little regulation in this area, causing the logistics real estate market to become somewhat fragmented and lacking consistency in terms of specific rules and regulations. As a consequence, private operators providing services in logistics and transportation developed their own premises, creating land transport chains which typically comprised warehouses distributed in different regions of the country (mainly in the suburbs). Such operators took advantage of the fact that these locations were not subject to any national regulation and could therefore be developed in accordance with the market’s needs. Thus, the choice of location could also be driven by costs (eg property costs and taxes) with no regard for long-term investment criteria such as proximity to ports, airports and rail stations. As a result of this flexibility and lack of specific regulation, major international operators also started to build their own infrastructure and developed logistics facilities tailored to their individual needs. However, in 2006 the Portuguese Government launched the “Portugal Logístico” Program, a plan to develop and restructure the logistics infrastructure in Portuguese ports through the creation of logistics platforms. This project aimed to regulate the structure of logistics and distribution of goods, implementing a network of 11 logistics platforms, complemented by two air cargo facilities. These were to be located near the most important points of production, ports and airports, taking into consideration too national borders and the existing transport infrastructure. The Government wanted to position Portugal as the main gateway for the international movement of goods in the Iberian and European markets, stressing the potential offered by its privileged geographical position in relation to intercontinental maritime freight routes. Following this trend, in 2008 the Portuguese Government enacted Decree-law 152/2008, of 5 August, setting out the National Network of Logistic Platforms (“Rede Nacional de Plataformas Logísticas” (NNLP)). This network is essentially based on partnerships with the private sector to develop, together with national or local authorities, sustainable and efficient logistics platforms, integrated in the NNLP. These platforms may be created on private or public property and can be managed by a private or public entity. The Decree provides for various ways in which the acquisition of logistics platforms may be structured. Although the “Portugal Logístico” Program was not fully implemented and the results were not as expected, mostly due to the financial crisis, it has introduced a new model into the logistics real estate market, which will ultimately lead to a much more organized (and demanding) type of user/owner. As a consequence, private operators have developed more efficient logistics parks, either directly managed or via third parties, focusing on strategic locations, with the sole purpose of selling, renting or transferring the right to use a property located in a logistics park. It has also contributed to the creation of a new type of agreement, as an alternative to the non-residential lease regime, commonly known as an “agreement for the use of space in a logistics park”. These agreements may govern not only the logistics platforms developed under the “Portugal Logístico” program but also other types of logistics premises. As well as the right to use the premises, the agreements also cover other associated rights, such as common services and facilities, including maintenance, cleaning and safety services. Use of such an agreement may be a way for the owner or the manager of the logistics parks to avoid the application of the non-residential lease regime set out in the Portuguese Civil Code. This is attractive because although the nonresidential lease regime is more flexible than it was, there are several rules that cannot be waived by parties, such as the rules regarding eviction, and preemption rights, amongst others, which may not sit well with the practicalities of the market. In summary, Portugal may be considered to be an important and strategic country in which to invest, particularly the logistics sector which is, to a certain extent, greenfield. The sector is growing, and there is still plenty of growth to come. Note: Logistics and related real estate matters were examined in detail in Issue 17 of the Gazette. ABBC law firm is DLA Piper’s focus firm in Portugal. 18 | REAL ESTATE GAZETTE Like afternoon tea, cricket and other great British institutions, the real estate law of England and Wales can be a bit of a mystery for those who are not familiar with it. This article considers three areas of the real estate law of England and Wales that can give rise to significant problems if parties are not aware of the risks. Pre-contract negotiations Many jurisdictions require parties to act in good faith in their dealings with other parties. Unless the parties agree otherwise, there is no duty to act in good faith in England and Wales. Therefore, parties are free to negotiate and behave according to their own self-interest. In the case of real estate contracts, this freedom is supported by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which stipulates that a contract for a real estate transaction must (a) be in writing, (b) incorporate all of the terms of the agreement between the parties and (c) be signed by the parties. Until the parties have entered into a contract that meets those requirements, they are usually free to withdraw at any stage. Letters of intention to enter an agreement (also known as “heads of terms”) should be endorsed with the words “subject to contract” to indicate that a formal contract has not yet been created. The unexpected consequences of section 2 were illustrated in the case of Dudley Muslim Association Limited v Dudley Metropolitan Borough Council [2015] EWCA Civ 1123. The parties wished to vary an existing section 2-compliant contract and the High Court decided that a failure to ensure that the agreed variation also complied with section 2 meant that the agreed variation was not binding on the parties. Security of tenure for business tenants The Landlord and Tenant Act 1954 provides security of tenure for tenants who occupy premises for business purposes. In any commercial letting scenario in England and Wales, parties should take care to properly understand the effect the 1954 Act may have on their ability to either stay at the premises or take back the premises, as the case may be. Security of tenure under the 1954 Act is a very powerful and valuable right for tenants. The main consequences are: • Tenants can acquire security of tenure without a written lease because the right derives from the tenant’s occupation of the premises. This is a serious risk where the basis of a BEN BARRISON, LONDON SEEING AND MANAGING RISKS IN UK LEASES ISSUE 23 • 2016 | 19 tenant’s occupancy is not validated and they are permitted to occupy premises for an extended period. • Unless the statutory requirements to either renew or terminate the tenancy are followed, or the tenancy is terminated by forfeiture, a break option or an agreed surrender, the tenancy continues on the same terms after the contractual expiry date provided the tenant remains in occupation of the premises. • If the landlord wishes to terminate the tenancy pursuant to the 1954 Act, it can only do so if it meets one or more of the seven statutory grounds stipulated by the 1954 Act: (a) disrepair—breach of tenant’s obligations; (b) persistent delay by the tenant in paying rent; (c) other substantial breaches of the lease by the tenant; (d) alternative accommodation can be provided for the tenant; (e) possession required for letting or disposal of the property as a whole; (f) demolition or reconstruction of the premises; (g) landlord’s own occupation of the premises. • If the parties are not able to agree the terms upon which the tenancy will be renewed or terminated, either party can apply to the court for a determination of the terms of the new tenancy or the landlord’s ground(s) for termination. • If the court is called upon to determine the terms of the new tenancy, it will do so according to its statutory powers which provide for a maximum term of 15 years and an open market rent. Those powers provide the basis upon which any negotiations as to renewal terms will proceed. • If court processes are engaged, it will usually take between nine and 12 months to reach the trial at which the terms are determined or the tenancy is terminated. Parties can “contract out” of the security of tenure provisions of the 1954 Act by following statutory notice and declaration processes. The effect of contracting out is that the tenant will not have security of tenure and the lease will terminate on its contractual expiry date. This is an important consideration for any landlord that may wish to take back the premises at a later date, let them to another tenant or negotiate renewal terms with the existing tenant in the open market. The benefits to the landlord of contracting out were demonstrated in the case of Erimus Housing Limited v Barclays Wealth Trustees (Jersey) Limited & Anr [2014] EWCA Civ 303. The Court of Appeal decided that when a tenant remained in occupation of the premises even after the expiry of its contracted out lease while the parties were negotiating a new lease, the tenant occupied the premises as a “tenant at will” rather than as a true tenant even if the negotiations were slow and protracted over a period of year. Tenants at will are expressly excluded from 1954 Act protection, and the tenant in this case did not have security of tenure. Tenant break options in leases Many leases contain provisions by which the tenant can terminate the lease on non-fault grounds. These provisions are often referred to as break options and commonly require parties to meet certain conditions precedent otherwise the break option will not operate and the lease will continue. Common conditions precedent include: • service of a notice at the time and in the form required by the lease; • paying sums such as rent falling due before the break date; • complying with the tenant covenants; and • delivering vacant possession of the premises on the break date. Problems that have been litigated in recent years include: • Form and timing of the notice— serving the notice on the wrong person, serving the right person but at the wrong address and miscalculating the break date. • Payments—apportioning rent up to the break date and failing to pay interest which has become due on historic late payments of rent even if not demanded. • Complying with the tenant’s covenants—misunderstanding pre-conditions requiring “material” or “substantial” or “reasonable” compliance, failing to follow the absolute requirements for decoration and leaving it too late to reinstate alterations. • Delivering vacant possession on the break date—sub-contractors completing last minute works beyond the break date and leaving office furniture behind. In many cases, the problems that can arise when a break option is being operated can be eliminated or, at least, made less significant by looking very carefully at the terms of the break option when it is being negotiated in heads of terms and/or the lease. For example: • The term “vacant possession” is commonly seen in break options but it has no defined legal meaning and will mean different things in different circumstances. Therefore, parties should clearly set out in the lease either what is meant by “vacant possession” or simply state that the tenant will have ceased to occupy the premises and will have determined any interest deriving out of this lease by the break date. • In English leases rent is conventionally payable in instalments four times a year. Each payment of rent is intended to relate to the three months following the date for payment. Perhaps surprisingly, if the date on which a break option takes effect is part way through one of those three-month periods, the tenant must still pay a full three months’ rent in advance and is not automatically entitled to any refund for the period following the break date. The parties may however agree to include an express term in the lease providing for such a refund. Commonly, additional capital payments over and above the rent due must be made by tenants to exercise a break right. In all such cases, the parties should seek to eliminate any uncertainty as to what has to be paid and by when. If the intention is that the rent for the full rent period is to be paid but that the tenant will be entitled to recover any “overpayment” of rent for the period after the break date, if the break option operates successfully, the lease should include provisions entitling the tenant to do so. This will ensure the tenant knows it has to pay the full rent but that it can recover the overpayment. In addition, the parties should stipulate precisely what payments are required—all sums under the lease or just the principal rent? In 2015 the UK’s Supreme Court unanimously dismissed an appeal by a tenant who contended that a term should be implied into its lease by which the tenant would be entitled to recoup overpaid sums after exercising its break option. The decision reinforces best practice: If parties want to be able to claim back overpaid sums, then they should ensure the lease includes express apportionment or recoup provisions that entitle them to do so (Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72). OFFICES—DEVELOPING REAL ESTATE FOR MODERN END USERS | UK 20 | REAL ESTATE GAZETTE Morocco is an increasingly favoured target for international investors looking to diversify real estate investment opportunities. In 2014, the real estate sector represented 38.6 per cent of foreign international investment compared to 14 per cent in 2013. A series of reforms to provide safer and simpler real estate transactions is currently being introduced by the Moroccan authorities in response to persistent criticism from international investors. The National Land Law Policy Conferences held on 8 and 9 December 2015 in the resort town of Skhirat enabled them (with the assistance of legal professionals, developers and property investors) to debate over 50 recommendations in several different areas: legislation, legal protection, the management and governance of state land, town-planning and development plans. The challenge they face is to produce a clearer legislative framework by overhauling Moroccan land law. The variety of land law regimes The complexity of the land law system in Morocco is a result of various factors, principally the variety of legal regimes governing land: “public” land (Habous or Guich) co-exists alongside melks and land privately owned by the state, whose characteristics are very different. For example, certain properties are inalienable or can only be transferred subject to certain conditions, while other properties require state permission in order to be transferred or, where the proposed purchaser of agricultural land is foreign, a certificate of non-agricultural purpose must be obtained. Registered and unregistered property The complexity of the land law system in Morocco is also a result of the coexistence of registered and unregistered property. Lack of registration affects quite a significant proportion of properties in urban areas (mainly the medina historic towns) and properties in rural areas. Registration procedures do exist but they are lengthy and complex. Under the “traditional” system, based on local customs, title to unregistered property is based on (i) peaceful possession and (ii) uninterrupted common knowledge for a period of 10 years (vis-à-vis third parties) or 40 years (vis-à-vis family members). Title to unregistered property is proved by presentation of a moulkiya, namely an official document by which 12 witnesses confirm before two Adouls (Shari’a law notaries) that the person claiming title to the property has lawful possession. Obtaining these declarations can be a painful process. Transfer of title is another way of obtaining ownership. It presupposes however that the property in question is alienable, yet certain land (by virtue of its legal nature) is inalienable or can only be transferred on certain conditions. In practice, therefore, it is advisable to carry out full due diligence on the legal nature of the land before purchasing and to conduct a prior check of the administrative/town planning consents required to carry out the proposed transfer. The transfer of title to unregistered property occurs at the moment when both parties wish to be bound (Articles 488 and 489 of the Obligations and Contracts Dahir/Decree), although title will not be enforceable against third parties until it is registered with the Registration and Stamp Duty Authority. It is mandatory that any transaction relating to rights in rem over unregistered property be established by means of an official document drafted either by Adouls, notaries or (since the passing of Act No. 39-08) lawyers who are registered with the Court of Cassation. While unregistered property has several drawbacks for real estate investors due to unreliable proof of ownership, the lack of precise identification and the uncertainty regarding which regime applies, many properties in Morocco, particularly in outof-town areas, are registered. A property is considered registered when the registration/publication process has been followed through and benefits from the probative effect of REFORM OF LAND LAW SYSTEMS IN MOROCCO MYRIAM MEJDOUBI, PARIS AND CHRISTOPHE BACHELET, CASABLANCA HOTELS—A SAFE HAVEN OR OPEN TO DISRUPTION? | MOROCCO ISSUE 23 • 2016 | 21 being recorded in the land register. Title to registered property passes when it is recorded in the land register. The registration of land covered by any of the regimes remains a priority for the Moroccan State. Sales of uncompleted properties Whilst the acquisition of registered and unregistered property remains a significant way of transferring land, buying uncompleted properties off-plan (a method which is gearing up for a major new reform) has also been very popular with investors. The sale of an uncompleted property (vente en état futur d’achèvement) is defined in Article 618-1 of the Obligations and Contracts Dahir as any contract by which a vendor agrees to build a property within a set timeframe and the purchaser agrees to pay the purchase price for it as work proceeds. In principle, a preliminary contract can only be entered into on completion of the building’s foundations (failing which it will be null and void) and it is only at that point that the vendor is entitled to require a down payment. Although this provision protects the interests of purchasers, it constitutes a financial constraint for developers who have to advance the funds to build the foundations. However, in practice, in most cases vendors require investors to enter into reservation agreements and make down payments before any work begins. This highly contentious practice (given the legal context) is increasingly being brought to the attention of the courts. Mainly in order to end this practice, a draft law for an overhaul of the regime governing sales of uncompleted properties in Morocco and to provide better legal protection for purchasers is currently being discussed in Parliament. The draft law, which at this stage comprises about 20 articles and which adopts certain recommendations made by the Economic, Social and Environmental Council (ESEC), provides that vendors and purchasers may only sign a contract for sale once the building permits have been obtained, bringing the practice of reservation agreements to an end while satisfying the concerns of developers in terms of the financing of building projects. Vendors must define precisely a property’s characteristics and surface area, and the instalment dates and percentage of the sums advanced. The draft law gives purchasers the right to insert an advance notice on the land register without the vendor being able to object, whilst the current law requires its prior consent. However, this right may not be exercised until the purchaser has paid at least 50 per cent of the total purchase price. The project owner must provide the new owner with a certificate of conformity for the works, drawn up by an architect, as proof that the structure complies with the specifications and that the developer has complied with its obligations. Building rights In addition to sales, Moroccan real estate practice has seen an increase in the use of building rights (droits de superficie), defined as rights of ownership over buildings or structures on land belonging to third parties. The holder of a building right may assign it, mortgage it (if the underlying property is registered) or grant easements over the property in question. For example, building rights are used as part of project financing to enable lenders to register a mortgage as security for the loans granted to the project company. Leases The Dahir of 24 May 1955 introduced a mandatory regime for leases of properties or premises in which a business undertaking is operated. This regime has many similarities to the French legal system governing business leases although it is less developed. In practice, business leases entered into in Morocco incorporate the characteristics of triple net or FRI leases ie, fixed terms (with a break option at three, six and nine years), costs being recharged to tenants, maintenance obligations being placed on tenants, etc. HOTELS—A SAFE HAVEN OR OPEN TO DISRUPTION? | MOROCCO Buying uncompleted properties off-plan “ (a method which is gearing up for a major new reform) has also been very popular with investors ” 22 | REAL ESTATE GAZETTE RECENT TRENDS IN RESORT MIXED USE DEVELOPMENT LYNN CADWALADER, SAN FRANCISCO I ntroduction Resort communities have evolved over the last several decades from communities comprised of an amalgamation of distinct projects and uses with no common plan and scheme of development, to forwardthinking “sustainable” communities with planned integration of uses and major amenities (referred to as “planned unit developments” or “master planned communities”). Most state laws now grant greater flexibility to mixed use master planned communities than with single use communities, including in establishing the covenants, conditions, easements and restrictions (the “CC&Rs”) that govern the property within the community. Historical perspective A major boom in recreational real estate development occurred in the 1960s and early 1970s. Most local governments lacked zoning or other land-use regulations at this time and recreational lot sales and real estate development in resort areas went forward relatively unchecked. As complaints of fraud and misrepresentation in “dirt” sales began to surface, consumer and environmental groups began to take issue with irresponsible development practices. Perhaps motivated by the abuses then occurring in the development of scenic resort areas, a movement began in the resort industry to establish higher standards for resort development in major destination resort and secondhome communities. The demand for recreational real estate in the 1970s began to move away from recreational lot sales toward second-home and resort condominium communities featuring significant recreational amenities. Timesharing made its appearance on a large scale basis in the United States at this time as well. State and local governments began to enact statutes that required comprehensive community-wide landuse planning prior to consideration of zoning and development in many areas, with the requirement that all zoning, subdivisions and development permits be consistent with the general plan for the area. However, many resort communities were located in unincorporated areas and lacked a general plan or the forces to implement and enforce such a plan. The 1980s and 1990s were a period of major growth and change for resorts and resort communities. The master planned communities of this era were generally targeted to those in the top income levels, as baby-boomers with excess cash began to look toward retirement with the desire for continuing their active lifestyles. Entering the new millennium, resort development experienced a consolidation in the industry, with resort industry giants being the only players with sufficient capital to initiate the development or re-development of large master planned resort communities. The limited availability of developable resort sites within the United States, and the high costs of such development, led to the trend of “revitalizing” existing resort communities. Many resorts around the United States and Canada began planning or building “base villages” at their resorts in order to accommodate the diverse interests of people visiting the resorts. Resorts are no longer built to accommodate one main season or one major amenity, but include a wide array of year-round recreational amenities and services such as golf courses, water sports, skiing and ice-skating, fishing and HOTELS—A SAFE HAVEN OR OPEN TO DISRUPTION? | USA ISSUE 23 • 2016 | 23 HOTELS—A SAFE HAVEN OR OPEN TO DISRUPTION? | USA gaming, horse-riding, hiking trails and bike paths and health spas, designed to appeal to a broad-base of users with varying interests. The re-created resort communities tend to embody Europeaninfluenced, pedestrian-oriented villages encompassing a mix of residential units and carefully planned high-end retail outlets and restaurants, designed for maximum year-round occupancy and cash flow. Distinguishing characteristics of resort communities Resort communities can generally be categorized by three primary criteria: (i) “destination” or “nondestination” resorts, which are defined by the proximity of the resort to its primary markets; (ii) setting and primary recreational mix (for example, ocean resorts, mountain/ski resorts, golf resorts); and (iii) type and mix of real estate products being offered. Destination or nondestination resort Destination resorts are located some distance from the markets which feed the resort, which means that the resort visitors reach the resort by journeying a fair distance (generally by air as opposed to car), and visit less frequently (often less than once per year or less, and sometimes only once). Stays are generally longer. Nondestination resorts are often located within a fairly short drive (between two and four hours) of their primary market(s) and generally do not market heavily to visitors from farther away than the primary market(s). Visitors come more frequently and stay for shorter periods of time, often for the weekend. Nondestination resorts located close to large urban areas can also be primary residence communities, providing resort living within commuting distance to work. Destination resorts tend to cater more to the second home market, and are generally more upscale and expensive. They generally have shorter seasons (for example, the ski season generally ends in April vs. late spring or early summer). They also generally have a higher ratio of hotels and condominiums than second homes. Setting and primary recreational amenities The setting of a resort and its primary amenity mix often shape the character of a resort. Skiers gravitate toward mountain resorts, while beach-goers and boaters may prefer ocean resorts. Having a master plan in place which reserves large amount of open space and ensures that the beauty of the region will be preserved is critical to the resort’s success. Type and mix of real estate products Real estate is often the primary revenuegenerating source of the resort (as opposed to the recreational amenities, which often operate in the red for long periods of time during the start-up of the resort, and due to seasonal variances), thus obtaining the right mix of product is critical to success. Recent trends in mixed use resort development Industry consolidation The consolidation trend in the resort industry that began in the 1990s has accelerated at a rapid pace over the past two decades. This trend has been driven by the substantial capital requirements of resort development and business operations, as well as volatility in the financial markets. Most large-scale resorts are now owned by private equity funds and REITS, which can efficiently integrate groups of income-producing properties into investment portfolios, offsetting regional and market-driven irregularities. 24 | REAL ESTATE GAZETTE Brand expansion into mixed use development One of the most significant trends in resort development in recent years has been the expansion of major hotel and hospitality brands into the mixed use resort market. Hospitality brands can be strong contributors to resort communities: (a) strong hospitality brands can enhance the image of the resort, create a special address, or provide name recognition for the project through an established name and proven effective marketing plan; (b) a wellknown brand name has credibility in the minds of guests/purchasers, and consumers feel more comfortable staying at a hotel they know by name, or purchasing real estate under a known brand; (c) a hotel, as a mixed use resort component, brings 24-hour vitality to a resort, attracting people and groups throughout the day and evening by providing dining, entertainment, recreation, and other amenities that serve not only hotel guests, but also other resort visitors or resort property owners. Mixed use resort villages Most resort communities are now being developed as self-contained mixed use resort villages (branded and non-branded) featuring: (a) multiple revenue-producing uses, (b) significant physical and functional integration of project components, and (c) development in conformance with a coherent plan and scheme. Multiple revenue-producing uses Mixed use developments generally have three or more significant uses, which should each attract a market in their own right. In most mixed use projects, the primary uses are income-producing, such as retail, major amenities, and hotel facilities. Other significant uses might include residential use, convention facilities, performing arts facilities and museums. Physical and functional integration The second characteristic of mixed use developments is a significant physical and functional integration of project components, including careful positioning of project components around central public spaces, and interconnection of project components through pedestrianfriendly pathways and trails, and a vertical mixing of project components in a single structure in the village areas. “It takes a village” The recent focus of resort master planned communities is the creation of pedestrianoriented “villages,” which marry the beauty of the surrounding area (for example, beach, mountain or desert) to the village. These new resort operators are often very “formulaic” in their approach both as to location of the resort and in masterplanning the resort, with the goal being the creation of residential property as “revenue annuity” that will provide yearround rental income for the developer. The real money is in the real estate Although resort development (and redevelopment) invariably includes on-site improvements, such as golf courses, marinas, ski-mountain improvements, a close look at the economics of owning and operating resorts shows that the real money for master developers during the first 10 years the resort’s development comes from real estate sales, not resort operations. The challenge of mixed use resort communities Mixed use resort communities have become increasingly popular in recent years. Where resorts once tended to be developed as single-purpose sites with primarily one exclusive form of ownership or use, resorts now appeal to a broad range of visitors and owners by developing multiple uses and types of vacation properties within a large resort. The following are important factors to consider in developing a mixed use resort community: • Initial planning and start-up costs. Due to the trend toward mixed use resort development, master planning the resort, or creating a comprehensive plan and scheme of development, has become more important. Multiuse resorts have the potential to be much more profitable than single-use resorts, but pose more challenges and complications than a smaller single-use project that can be easily constructed, managed and marketed. Multi-use resorts require much more initial planning, and more up-front capital is required for land acquisition, master planning the development and for putting in the initial resort infrastructure. • Each resort use must stand on its own. It is often assumed that a use that will not succeed on its own will suddenly work in a multi-use resort. While the varied uses of the mixed use resort will support and enhance each other, they will not create a market for an otherwise non-viable use. Successful projects start with one or two products and one significant amenity, and as these projects mature and other products and additional amenities to meet the demands of the expanding community can be added. • Flexibility and vested development rights. Maintaining flexibility to build and sell what the market demands is critical to the success of a mixed use master planned community. It is important to allow for the time necessary to achieve build-out if market conditions change and the build-out takes longer than anticipated. Developers should ensure that approvals allow for re-allocation of density within the resort. • Extended developer control period. The master developer must be able to proceed with build-out of the resort without being unduly hampered by the requirement of obtaining owner consent. Extended developer control periods set out in the master association documents is key. Establishing a developer control period that is based on density or acreage build-out is a way to remain flexible in this regard, as opposed to setting an artificial number of years that may end up not being long enough. HOTELS—A SAFE HAVEN OR OPEN TO DISRUPTION? | USA ISSUE 23 • 2016 | 25 INVESTING IN THE DUTCH HOUSING MARKET RUTGER ORANJE AND JANNEKE BERENDSEN, AMSTERDAM The Dutch economy is gradually improving and showing modest growth. House sales are picking up and the decrease in house prices has flattened out. It is not only Dutch, but also foreign investors, aiming at a stable return in long term investments, who are increasingly looking at the Dutch residential market. This article examines the attractions of the Dutch housing market and considers potential pitfalls. The Dutch housing market Approximately 75 per cent of the three million rented houses in the Netherlands belong to housing associations. These associations are responsible, among other things, for letting social houses, defined as homes for which the monthly rent is under €711. Housing associations may only let social housing to people with a maximum yearly income of €35,739 gross. The social housing sector is highly regulated, unlike the more expensive private housing sector (where rents are higher than €711). In the social housing sector, the rent payable depends on the quality of the house and is based on a points system, although, as noted earlier, rents in this sector are subject to a ceiling figure of € 711. In addition, rent indexation is regulated. As at 1 July 2015 the maximum rent indexation was 2.5 per cent (inflation + 1.5 per cent) for people with an income of €34,329 or less, 3 per cent for those with an income between €34,229 and €43,786 and 5 per cent for those with an income of more than €43,786. These different indexation levels were introduced to motivate tenants to move up the housing ladder and to ensure that the cheaper homes remain available for people with a relatively low income. In the private sector however, tenants and landlords have more freedom to agree the rent and services provided and there is no maximum rent and indexation is not capped. In general, investment opportunities in the private sector really only exist in relation to those properties which generate a rent of between €711 and €1200. This is because if the monthly costs for housing exceed €1200, most people will consider buying a house rather than renting it. However, there is still a shortage in the supply of houses in the €711– €1200 range and the Dutch housing market is currently focused on satisfying the increasing demand for such properties. Investors looking at the Dutch housing RESIDENTIAL AND PRS—A NEW DESTINATION FOR INSTITUTIONAL MONEY | THE NETHERLANDS 26 | REAL ESTATE GAZETTE RESIDENTIAL AND PRS—A NEW DESTINATION FOR INSTITUTIONAL MONEY | THE NETHERLANDS market will not only need to consider the commercial issues noted above, they will also have to comply with specific Dutch legal and tax issues. Some of these issues are highlighted very briefly below. RETT First, the good news for investors is that real estate transfer tax (RETT) for private houses has been decreased to 2 per cent, compared to the 6 per cent payable on transfers of commercial real estate. This decrease is specifically aimed at boosting the recovery of the housing market. Landlord tax Landlords with a portfolio of more than 10 social housing units (whether the landlord is a housing association or a private investor) will have to pay a special tax (“verhuurdersheffing”) on the value of their portfolio of 0.491 per cent (to be increased to 0.536 per cent in 2017), subject to a maximum of €15 million per taxpayer. This tax has been introduced to lower the national debt and also to improve the housing market. (NB: This landlord tax is not applicable to houses in the private sector.) Approvals Where a housing association wants to sell a portfolio of houses to third party investors, the sale requires the approval of the Dutch Minister of Housing. The approval procedures vary depending on whether the sale concerns social or unregulated housing. Where the sale involves 90 per cent or more unregulated housing, a public offering will be sufficient. However, where the sale involves 90 per cent or more social housing, the houses must first be offered for sale to the existing tenants, and after that to other housing associations. Only then may the houses be offered for sale to the market. In addition to the ministerial approval required, in case of the sale of social housing all relevant local authorities will also have the opportunity to give their view on the proposed transaction from a public housing perspective. Tenant associations Finally, investors in the residential property market will have to deal with tenant associations during negotiations: where an owner owns more than 25 rental houses (in either sector) the Landlord and Tenant Consultation legislation (“Overlegwet”) will apply. In such cases the following requirements apply: The landlord of more than 25 houses will need to ensure that the tenants form a tenants’ association, and this association must be involved in all asset- and property management issues. The association has the right to be kept informed regarding these issues by the landlord, and also regarding decisions to sell and/or purchase property. A landlord may not take any asset- or property management decision before the tenants’ association has had the opportunity to meet with the landlord or give the landlord written advice. The landlord may refuse to accept the advice of the tenants’ association, provided that it gives a reason for doing so. The tenants’ association can take the matter to court if it is not satisfied that the landlord has complied with these requirements. The limited case law we have in this area indicates that the courts will be slow to prohibit actions taken by a landlord, provided that the landlord has complied with its obligation to keep the tenants’ association informed and has given good reason as to why the association’s advice is not being followed. Conclusion The Dutch residential market has the potential to be very attractive as an alternative asset class with stable returns for long term investments. Buying portfolios from social housing associations may be interesting, although there are some constraints, especially the landlord tax and the various approvals required from stakeholders. The private sector with rents of between €711 and €1200 seems to be attracting an increasing number of investors, but there is still a shortage of properties in that sector. This may account for the current trend of investors developing their own properties in this area of the Dutch housing market, as part of their investment strategy. “ The good news for investors is that real estate transfer tax (RETT) for private houses has been decreased to 2 per cent ” ISSUE 23 • 2016 | 27 According to the latest market research publications, the shopping mall floorspace in Europe has substantially increased during the last few years, amounting now to more than 152.3 million sq m. However, due to the financial crisis, there was almost no shopping mall development activity in Spain at all during 2014. At the beginning of 2015, there were 544 shopping malls and retail parks in Spain, with a total gross lettable area (GLA) of over 15.4 million sq m. Things are now looking brighter: during 2015 and 2016, around 105,000 sq m of GLA are expected to be developed or are already under development. This returns Spain to the top ten countries in Western Europe regarding the development of new shopping malls and retail parks. As additional good news, sales in Spanish shopping malls grew by 5 per cent during 2014, and although final figures have not yet been published, a solid increase is expected for 2015. Spanish shopping malls and retail parks bring together more than 33,000 traders, and this group increased their workforce by 2.6 per cent in 2014, currently employing 327,000 people. This is an excellent indicator of the upturn experienced by the Spanish economy in the last two years. As a result of this positive outlook in Spain, investment transactions on shopping malls reached a figure of €2.9 billion in 2014, a sixfold increase on the 2013 figure. According to the Spanish Association of Shopping Malls and Retail Parks (AECC), a total of 24 transactions were undertaken in 2014, which affected 34 of Spain’s 544 shopping malls over the course of the year. Seventy per cent of that investment came from abroad. During 2015 the investment trend remained solid (although it is not expected to achieve the record investment figures reached during 2014). For example, at the end of third quarter of 2015, a total of 23 transactions had been completed, with an aggregate transaction value of €1,500 million. From these figures, it seems fair to suggest that if 2014 was the year of economic recovery in relation to investment in shopping malls, 2015 was the year of consolidation (albeit the final figures have not yet been published). The main features that emerge from the transactions that have taken place are as follows: • Listed vehicles such as SOCIMIs (Spanish REITs, very active currently in Spain—see Orson Alcocer, “SOCIMIs—At last, REITs in Spain” Real Estate Gazette (Issue 15, 2014) page 38), and investment managers are now the key players in the acquisition of shopping malls and retail parks in Spain. • The most desirable assets are (i) consolidated shopping malls located in or around main cities, such as Madrid and its surrounding area, and (ii) local and regional shopping malls located in smaller provincial cities. • While for other categories of assets, such as industrial warehouses, share deal structures are quite typical, the most common investment procedure for acquiring shopping and retail malls continues to be through asset deals, under which real estate assets are directly acquired by the investor by means of one or more real estate vehicles. Aside from the improving economic situation in Spain, the main attraction in investing in shopping malls lies in the investors’ belief that rents in this sector will increase substantially over the next few years, as most existing tenants are currently paying very low rents. It seems reasonable to assume, therefore, that shopping malls and retail parks will remain an attractive sector for investors in the near future. IGNACIO ANTÓN, MADRID SHOPPING MALLS IN SPAIN: THE RETURN OF AN ACTIVE MARKET SOUTHERN EUROPE—A RETURN TO NORMALITY? | SPAIN MAIN INVESTMENT TRANSACTIONS IN SPAIN DURING 2015 Description Location GLA Transaction SQM Price Vendor Purchaser Plenilunio Madrid 70,000 375,000,000 Orion Capital Klepierre Puerto Venecia (5%) Zaragoza 103,500 255,400,000 Intu CPP AireSur Seville 20,000 76,500,000 Grupo Lar CBRE GI* Zielo Shopping Pozuelo, Madrid 15,555 71,500,000 Hines UBS As Termas Lugo 46,500 67,500,000 ADIA LAR Socimi* * DLA Piper acted as legal advisor 28 | REAL ESTATE GAZETTE BREAK OUT THE SCHNAPPS AND VODKA: NONPERFORMING LOANS IN CEE AND SEE DENISE HAMER, LONDON AND VIENNA Baskin Robbins, the American food chain, once boasted 31 flavours of ice cream. These days in Central and Eastern Europe (CEE) and South Eastern Europe (SEE) the dominant flavour of transaction is non-performing loan sales and acquisitions. Deals are coming to market at incredible speeds. The lounge at Ljubljana airport has lately resembled a board room more than a waiting room and last summer virtually the entire loan portfolio legal and financial advisory community decamped not to the beach but to Bucharest to work on the €3.6 billion Project Neptune. What has happened? For those of us in the CEE/ SEE loan and loan portfolio market, this turn of events has been a long time coming. The era of “extend and pretend” in the banking sector that followed the 2008 global financial crisis was originally predicted to end as early as 2011 with the introduction of Basel III. Aggressive Tier 1 capital requirements were intended to force banks to deleverage and disgorge non-performing and non-core assets, including loans and loan portfolios. In 2013, we jubilantly declared the “official end of extend and pretend” in CEE/ SEE. And yet, there appeared few transactions in the region and none of material volume or value. In 2015, however, there occurred a perfect storm of economic, regulatory and legal factors that propelled the CEE/ SEE loan and loan portfolio market. Economically, the US had gradually recovered, forcing loan and loan portfolio investors to look to Europe for well-priced assets. Western Europe, that is, the beer and wine drinking countries, had become a saturated target. European real estate loan and loan portfolio sales (primarily in the UK, Ireland and Spain) reached a record breaking €80 billion in 2014, exceeding 2013 volume by 250 per cent. With ten serious bidders chasing every deal, investors now needed to look to the schnapps and vodka drinking countries for yield. In terms of regulation, BASEL III was followed by the European Central Bank’s 2014 Comprehensive Assessment, including the Asset Quality Review (AQR), of 130 Eurozone banks. The failure of the AQR by 25 banks and the discovery that aggregate bank assets had been overvalued by at least €48 billion, further increased pressure on the financial sector to sort out its balance sheets. Amongst the over-leveraged and under-capitalized financial institutions were not only CEE/ SEE domiciled banks, such as Oesterreichische Volksbanken of Austria, Nova Ljubljanska Banka of Slovenia and National Bank of Greece, but also Western European banks with “ In 2015, there occurred a perfect storm of economic, regulatory and legal factors that propelled the CEE/ SEE loan and loan portfolio market ” CENTRAL AND EASTERN EUROPE—OPPORTUNITIES FOR BARGAINS? | CEE/ SEE ISSUE 23 • 2016 | 29 significant CEE/ SEE investments, such as Belgium’s Dexia. Legally, CEE/ SEE jurisdictions had been incrementally addressing systemic jurisprudential inadequacies and uncertainties that had historically deterred investors. From the implementation of comprehensive insolvency regimes to the creation of enhanced enforcement procedures, countries such as Poland, Romania, Hungary and Slovenia materially reduced legal risk. In fact, just this January, Ukraine enacted legislation to permit the transfer and assignment of cross-border loans, finally enabling foreign lenders to sell their exposures. CEE/ SEE loan and loan portfolio sales nearly quadrupled between 2014 and 2015. And the momentum shows no sign of abating, with 2016 kicking off Projects Triton and Rosemary in Romania, Project Pine in Slovenia, Project Ivica in Croatia and others in Poland, Hungary, Bulgaria, Greece and throughout the region. The dedicated DLA Piper Portfolio Solutions team of over 600 lawyers globally have been active on either the seller or the buyer side of nearly every CEE/ SEE loan portfolio transaction. In future issues of the Real Estate Gazette, we propose to examine specific legal aspects of such transactions in CEE/ SEE. 30 | REAL ESTATE GAZETTE A BREATH OF FRESH AIR FOR CZECH MORTGAGE LAW ZUZANA SLOVÁKOVÁ AND MAREK STRÁDAL, PRAGUE The Czech Civil Code (Act No. 89/2012 Coll., referred to in this article as the “New Civil Code”) came into force on 1 January 2014, together with a number of other new legislative provisions. This represents the most significant amendment to Czech private law in more than 20 years, and has substantially altered several aspects of Czech property law, including the law relating to mortgages. The New Civil Code has now been in force for two years and banks are making extensive use of the new provisions. What has changed? The New Civil Code has significantly changed the way in which mortgages are regulated. Section 3073 of the New Civil Code provides that rights arising from security interests created under the previous legislation remain unaffected but contracting parties are free to agree that their rights and obligations arising from such security interests will be governed by the New Civil Code. There has been no change to the requirement that a mortgage agreement must be in writing. The mortgage becomes effective when it is registered in the relevant public register, which, in the case of real estate is generally the Real Estate Cadastre. Mortgages over property not registered with the Cadastre must instead be registered in the Register of Liens. The principle of good faith applies to registration so that once the mortgage is registered, it is not possible for a claimant to submit that they had no knowledge of its registration. Future assets The New Civil Code provides that a future asset, that is, one which is not yet owned by a mortgagor or which does not exist at the time the mortgage agreement is entered into, may be used as security. The mortgage over property registered with the Cadastre will be created when the mortgagor becomes the owner of that property, provided that future mortgage has been registered with the Cadastre in advance, with the agreement of the current owner. Use of future mortgages will, in practice, depend to a large extent on the assessment by the lender of the risk that the mortgagor will not, in the end, become the owner of the property. Prohibited terms Unlike the previous legislation which included an absolute ban on certain conditions, the New Civil Code stipulates that such restrictions only apply to terms purported to be agreed prior to the maturity of a secured debt. Once the secured debts have matured, the parties to the mortgage agreement may agree that (i) the mortgagee will not demand the foreclosure of the asset that constitutes the security, (ii) the mortgagee is entitled to sell the asset or keep it for an arbitrary or pre-negotiated price, or (iii) the mortgagee can receive the income from the asset. Notwithstanding these provisions, if the mortgagor is an individual not acting in the course of business or a small or medium-sized enterprise, the covenant under (ii) is restricted even after the maturity of the secured debt. If the price for the asset is arbitrary or pre negotiated, enforcement of the mortgage through the mortgagee retaining the property should be possible. Restrictive covenants Under the New Civil Code, parties to a mortgage arrangement are permitted to agree on various restrictive covenants provided that agreement does not breach good practice. Such covenants include, for example, (i) a negative pledge covenant (section 1761 of the New Civil Code) restricting the mortgagor from disposing of, or further encumbering property, which has to be agreed upon as a right in rem, for a limited time, and registered in the Cadastre in order to be effective towards third parties, and (ii) a prohibition on creating a mortgage (section 1309(2) of the New Civil Code) which also needs to be registered in the Cadastre or in the Register of Liens, unless a third party is otherwise aware of the prohibition. Ranking of mortgages The New Civil Code allows for alteration in the ranking of multiple mortgages over a single property. This can be achieved by a written agreement among the mortgagees which becomes effective against third CENTRAL AND EASTERN EUROPE—OPPORTUNITIES FOR BARGAINS? | CZECH REPUBLIC parties by cadastral registration. The priority for mortgagees who are not party to the agreement is unaffected. In refinancings, in particular, parties may elect to replace the existing mortgage with a new mortgage in order to preserve the current ranking. The new secured debt cannot exceed the original secured debt, the mortgagor must ask for the mortgages to be replaced and the old mortgage ISSUE 23 • 2016 | 31 “ The new regulation is more detailed but parts of the law in this area remain unclear ” CENTRAL AND EASTERN EUROPE—OPPORTUNITIES FOR BARGAINS? | CZECH REPUBLIC must be deleted from the Cadastre within one year from the registration of the new mortgage. If the debt secured by a mortgage has been paid off but the mortgage has not been deleted from the Cadastre, the mortgage is “loose” and the owner of the property may secure a new debt by the mortgage, as long as the new debt does not exceed the original secured debt. Both replacement mortgages and the use of loose mortgages in favour of other secured lenders can be restricted by parties in the mortgage agreement and those restrictions must then be registered in the Cadastre. Insurance proceeds Another practical benefit of the New Civil Code is that the mortgagee will automatically be entitled to receive any insurance proceeds disbursed in connection with the mortgaged and insured property and to use such proceeds for the repayment of secured debts, provided that the insurer has been notified about the mortgage by the mortgagor or the borrower, or the mortgage is proven to the insurer by the mortgagee well in advance and such right of the mortgagee is not excluded by a mortgage agreement. Security agent The New Civil Code has introduced the concept of a security agent, which is already known in other jurisdictions and widely used in syndicated or other forms of financing with a number of lenders. The regulation of rights and obligations of the security agent towards the lenders or the security grantor is however very limited, indeed, arguably insufficient and not robust enough to be used. Therefore lenders tend to stick to the practice which prevailed prior to the introduction of the New Civil Code where the security agent is jointly and severally liable with other lenders from the syndicate or, in the case of foreign law governed facility agreements, a parallel debt structure is implemented. Enforcement Lastly, since 1 January 2014, the methods for enforcement of the mortgage available to the mortgagee have been expanded. Under the New Civil Code, in addition to a public auction or order for the sale of the asset by a court, the mortgagee may agree (in writing) with the mortgagor (or the obligor whose debts are secured by the mortgage) that the mortgagee is allowed to use other methods. This has paved the way for agreements for a private sale of the property. If that method is agreed, the mortgagee must undertake the sale with due care, both to protect its own interests and also those of the mortgagor. The mortgagee must use its best efforts to sell the security for the price that similar assets would generally be expected to achieve. The mortgagor will be able to claim damages if the mortgagee breaches these obligations. The mortgagee is not allowed to proceed with the sale or other method of enforcement of the mortgage earlier than 30 days after notifying the mortgagor, and registration of commencement of the enforcement in the Cadastre. Ownership of mortgaged buildings and land Parties to existing mortgages may also feel the effects of another significant change to the law governing Czech real estate: the reintroduction of the “superficies solo cedit” principle, meaning that a building forms a part of the land on which it is built, after decades of legal separation between land and building. However the law does not operate retroactively, and applies only to buildings constructed after 1 January 2014. For buildings constructed on plots of land owned by another person or legal entity prior to 1 January 2014, both landowner and building owner are granted a statutory pre-emption right (a right of first refusal). In respect of a mortgage created over a building or a plot of land only, the “superficies solo cedit” principle is ruled out by the nature of the mortgage itself. Therefore, ownership of a mortgaged building and land will remain separate unless there is a legally identical mortgage over both the land and the building. What can we expect? The New Civil Code has been in force for two years but we will need to wait for case law and academic commentary before we can assess the real effect of its provisions. The new regulation is more detailed but still, parts of the law in this area remain unclear. It is important that a proper balance be struck between the rights of all the parties to mortgage agreements. Whether the new legislation meets its aim of allowing parties to restructure mortgages and take advantage of new opportunities, remains to be seen. 32 | REAL ESTATE GAZETTE CORPORATE INCOME TAX EXEMPTION FOR FOREIGN INVESTMENT FUNDS—NEW DEVELOPMENTS ALEKSANDRA KOZŁOWSKA, WARSAW I ntroduction Poland is a key market for investment funds interested in the real estate sector. Moreover, from the Polish perspective, foreign investment funds are important players on the real estate investment market. Polish investment funds have enjoyed income tax exemptions for many years, and on 1 January 2011 these exemptions were extended to include foreign investment funds. This was achieved by introducing a new provision to the Polish Act on Corporate Income Tax (referred to in this article as the CIT Act) which expressly provides that neither Polish nor EU-/ EEA-based foreign investment funds are liable to income tax on revenues generated in Poland (eg rental income or capital gains from the sale of real estate located in Poland). This exemption gives foreign investment funds a significant opportunity to recover the CIT paid on their Polish investments, or even to avoid tax liability entirely. CIT exemption for foreign investment funds The amendment was introduced following a number of judgments in the Polish administrative courts, and in response to the position of the European Commission, and was aimed at ending the discriminatory taxation of foreign investment funds based in EU and EEA countries. Nonetheless, under Article 6.1 point 10a, CIT exemption is dependent on all of the following conditions being met: CENTRAL AND EASTERN EUROPE—OPPORTUNITIES FOR BARGAINS? | POLAND ISSUE 23 • 2016 | 33 • The entire income of the fund being subject to CIT taxation in its home country, regardless of the source of that income. • The fund’s business activity being limited to the collective investment of funds gathered by means of public or non-public offerings of securities, money market instruments and other property rights. • The fund’s activity being permitted by the competent authorities of the EU/EEA member state in which it is registered, or where it has its head office. • The fund being subject to supervision by the competent authorities of that EU/EEA member state. • The fund’s assets being entrusted to a depositary for safe-keeping. In addition, there should also be a provision in a double taxation treaty or other international document ratified by Poland that gives the relevant Polish tax authority the right to obtain tax information from the tax authorities of the country in which the fund is registered or has its head office. The Polish tax authorities’ restrictive approach In practice, the application of the CIT exemption to foreign investment funds (including those in the Polish real estate market) has long been a controversial topic. Hesitation on the part of the Polish tax authorities to grant the exemption has been mainly due to the diversity of organizational forms used by foreign investment funds. The legal form and structure of EU- and EEA-based investment funds often differ substantially from Polish investment funds—in particular, the latter have a separate legal personality but they are not set up as companies). Even when a foreign fund has official documentation confirming that it meets the requirements stipulated in the CIT Act, the tax authorities often refuse to apply the CIT exemption, claiming that it is not possible to treat a given investment institution as being comparable to a Polish investment fund. The view of the courts Foreign investment funds that are refused CIT exemption often take the matter to the Polish administrative courts and in many cases succeed. In general, the courts take the view that foreign funds are not required to operate on terms identical to those of domestic investment funds in order to qualify for CIT exemption. What is more, in April 2014, the European Court of Justice directly confirmed that a US-based investment fund was entitled to CIT exemption in Poland. Judgment of the Polish Supreme Administrative Court of 8 October 2015 On 8 October 2015, Poland’s Supreme Administrative Court (SAC) issued a judgment concerning the application of CIT exemption to foreign investment funds in the case of a German investment fund operating in the Polish real estate market. In particular, the SAC confirmed that, for the purpose of determining whether the CIT exemption conditions have been met, the treatment of a foreign investment fund as a Polish taxpayer should not be decisive. Since Polish tax provisions were presumed to conform with European law, the tax authorities were required to consider the taxation status of the fund in its home country. In this case, the Polish tax authorities considered that the German fund did not qualify for the CIT exemption, on the basis that it could not be considered a taxable person under the Polish CIT provisions. However, both the Administrative Court at first instance and the SAC disagreed with the approach of the tax authorities. Whilst the SAC agreed that the German investment fund should not be treated as a taxable person under CIT provisions, it stated that the company managing the fund should be deemed a Polish taxable person to the extent that that company represents the fund. This means that the CIT exemption may also be applied to revenues generated in Poland by German investment funds, provided that all the conditions stipulated in the CIT Act are met. Practical implications Although the Polish tax authorities have interpreted the CIT exemption conditions very strictly and have not taken into account the specific legal regulations in the foreign funds’ countries of origin, recent case law from the administrative courts (which has been better for these taxpayers) suggests that a more liberal approach may be expected. On the basis of the SAC judgment mentioned above, among others, foreign investment funds have a significant chance of a positive outcome, that is, recovering the CIT paid on Polish investments. It should be noted too that the CIT exemption may be applied to both Polish tax on capital gains earned by a fund (eg from the sale of real estate in Poland) and to Polish tax paid on the operational income (eg rental income). In general, the courts take the view “ that foreign funds are not required to operate on terms identical to those of domestic investment funds in order to qualify for CIT exemption ” CENTRAL AND EASTERN EUROPE—OPPORTUNITIES FOR BARGAINS? | POLAND 34 | REAL ESTATE GAZETTE I ntroduction Historically, it has only been possible for pension funds and insurance companies to invest in real estate under quite strict conditions in order to limit risks for their clients. However, a recent amendment to the Danish Financial Business Act has now made it possible for pension funds to make further investments in the Danish real estate market. Additionally, the change means increased opportunities for developers to obtain funding for their development projects. This article examines these changes. The old permanent placement rule Under Danish law, pension funds and insurance companies are subject to a relatively strict set of rules regarding the investment of their assets under management. This regulation aims to ensure that their funds are at all times adequate to satisfy their commitments. Until July 2015, the Danish Financial Business Act stated that pension funds and other insurance companies could build, own and manage real estate as long as this was for “permanent placement of assets”. Consequently, pension funds and insurance companies’ investments in real estate were always long-term and the regulation ruled out investment in high-risk development projects. In the spring of 2015, the Danish Parliament passed a bill which made it possible for pension funds and insurance companies to invest in real estate on a short term basis and at the same time increased the scope of potential investments to include infrastructure. The bill became Law in July 2015 and pension funds have already been taking advantage of the new opportunities. NORTHERN EUROPE AND SCANDINAVIA—SAFE HAVENS WITH A FUTURE? | DENMARK THE IMPORTANCE OF PENSION FUNDS IN THE DANISH INVESTMENT MARKET MICHAEL NEUMANN, HORTEN, COPENHAGEN ISSUE 23 • 2016 | 35 Pension funds’ new investment options The departure from the “permanent placement rule” is of particular interest to pension funds, since Denmark has one of the highest rates of private savings for retirement, totalling more than an estimated €400 billion, which is equivalent to 160 per cent of the Danish GNP. At the same time, the low interest rate makes investment in real estate even more attractive for pension funds, since it offers a better return on investment than other classes that deliver fixed rates of interest. For many years, it seems to have been the unofficial aim of pension funds to allocate around 5–10 per cent of their funds in the real estate sector with a focus on residential and office buildings. However, this trend could be set to change with the increased range of investment opportunities in other kinds of projects. A recent survey of pension funds also shows that many plan to increase their real estate portfolio by 50 per cent in the next few years. After a couple of years’ slowdown in the construction sector, this represents a much-needed boost. In addition, the option for pension funds and insurance companies to invest in infrastructure may also result in a shift in their investment targets, since investments in infrastructure are low risk while offering relatively steady returns. Risky business? The “permanent placement rule” was rooted in the assumption that the development of real estate with the prospect of sale was more risky than the development of real estate for the purpose of permanent ownership. However, this approach was subject to criticism for not giving the investor the chance to get the best possible return on the investment. At the same time, the objective of keeping risk to a minimum was already covered by other parts of the legislation requiring pension funds and insurance companies to act prudently and in their clients’ best interest. In addition, EU legislation has confirmed that placement rules are now outdated. The EU’s Solvency II directive from 2009 concerning risk allocation was implemented in Denmark in January 2016. The directive ensures a standard legal framework for the insurance business, eliminating obstacles for the free investment of insurance companies across borders. National obligations concerning risk spreading and placement rules have been replaced by less mechanical standards and the directive has instead introduced risk-based solvency-capital demands. Although there are now undoubtedly fewer restrictions for pension funds and insurance companies investing in real estate, they still have to comply with the requirements to maintain significant capital reserves and the requirement that they are able at any time to fulfill their financial obligations. It is therefore highly unlikely that the new found investment freedom for pension funds and insurance companies will result in an uncontrollable increase in high-risk development projects. Possibilities for developers Although the high solvency-capital demands may restrict pension funds’ involvement in the most high-risk projects, they are now able to participate in a much wider range of real estate development projects. This is good news for developers who are seeking funding outside the traditional financial sector. Developers and pension funds may also choose to manage their joint interests by engaging in a mutual partnership where the pension fund contributes most of the funding and the developer is in charge of developing the site. This type of collaboration is on the increase. For example, a large Danish pension fund recently collaborated with a Danish developer in the development of 1,200 homes in three cities in Jutland. Unlike previously, the pension fund in this project is not limited to renting the buildings out, but can choose to sell them on straight away. This freedom to invest may well prove to be very fruitful for the real estate sector, and it is fair to assume that this partnership will not be the last of its kind in the coming years. Horten is DLA Piper’s focus firm in Denmark. “ It is highly unlikely that the new found investment freedom for pension funds and insurance companies will result in an uncontrollable increase in highrisk development projects ” NORTHERN EUROPE AND SCANDINAVIA—SAFE HAVENS WITH A FUTURE? | DENMARK 36 | REAL ESTATE GAZETTE CAN BUYING NORWEGIAN COMMERCIAL PROPERTY TRIGGER NORWEGIAN FINANCIAL REGULATION? CAMILLA WOLLAN, OSLO I ntroduction The Norwegian real estate market has seen an increasing trend in cross-border activity in recent years and in 2015, it was one of the fastest growing real estate markets in Europe. Commercial real estate is usually acquired through the purchase of the entity which owns the property. The purpose of this article is to consider whether establishing a Norwegian corporate structure to acquire the company which owns the property, triggers any additional legal requirements. This was prompted by new legislation governing the managers of alternative investment funds (AIFs). There is no general investment restriction on foreign investors in Norway. Nor is there a general requirement, subject to a few important exceptions, for a public agreement to own shares in a Norwegian incorporated company. Previously a group of investors could establish an investment company without being regulated. However, the legal position has become less clear due to the new EU regime for managers of AIFs. Under this regime, a real estate company with a commercial purpose is distinguished from a real estate AIF. Scope of the Alternative Fund Managers Directive The scope of the Alternative Fund Managers Directive of 2011/66/EU (AIFMD) is broad, and, with a few exceptions, covers the management, administration and marketing of AIFs. (Readers are directed to Issue 19 of the Gazette which provides a snapshot of the efforts of national governments to implement the measures introduced by the AIFMD.) The directive is aimed at undertakings managing one or several AIFs on a regular basis and its focus is on regulating the managers rather than the AIFs. An AIF is, subject to a NORTHERN EUROPE AND SCANDINAVIA—SAFE HAVENS WITH A FUTURE? | NORWAY ISSUE 23 • 2016 | 37 few exemptions, subject to either a permit or registration requirement, depending on certain thresholds relating to assets under management and debt leverage. It is important to define AIFs and understand which investment companies and funds are covered by the AIFM regime. Single asset structures, in particular, may be challenging to place. Definition of an AIF An AIF is a collective investment undertaking that is not subject to the Undertakings for Collective Investment in Transferable Securities (UCITS) regime and includes hedge funds, private equity funds, investment companies and real estate funds, among others. The legal form of the undertaking is of no relevance. The AIF is defined in Article 4(1)(a) of the AIFMD, which is incorporated into the Norwegian Act, section 1-2(a). Detailed guidelines on “the key concepts of the AIFMD” are provided by the European Securities and Markets Authority (ESMA). The Norwegian Financial Supervisory Authority (NOR FSA) has stated that it will conform with the EU interpretation of the directive and the ESMA guidelines and adopt the practice of regulating AIFs which develops in the EU. The following characteristics, if all of the elements in the definition are met, are likely to lead to an undertaking being considered an AIF and falling within the scope of the regulation: Collective investment scheme Collective investment scheme where (i) the undertaking does not have a general commercial or industrial purpose, (ii) it pools together capital raised from its investors for the purpose of investments with a view to generating pooled returns to the same investors, and (iii) the holders of units/ shares have no day-to-day discretion or control. The legal form of the undertaking does not matter. UCITS funds fall outside the scope of the directive. Raising capital Activity of taking direct or indirect steps by an entity or a person which procures the transfer or commitment of capital by one or more investors to the entity for the purpose of investing it in accordance with a defined investment policy. It is not significant whether the capital raising activity takes place once, on several occasions or on an ongoing basis, or if the transfer of commitment of capital takes the form of subscription in cash or in kind. Investment of private wealth by a member of a pre-existing group (ie a group of family members where the sole ultimate beneficiaries of the legal structure are family members) is likely not to be within the scope of “raising capital”. Number of investors An entity which is not prevented by law, the rules of incorporation or any other provision of binding legal effect, from raising capital from more than one investor should be regarded as an undertaking which raises capital from a “numbers of investors”. This should even be the case if there is in fact only one investor. Defined investment policy Policy which refers to how the pooled capital in the undertaking is to be managed to generate a pooled return. An investment policy is fixed and often part of the rules of incorporation. It often specifies the investment guidelines and criteria as well as being legally binding on the manager. It is up to each undertaking and its owners to assess whether they fall within the scope of the application of the AIFMD/ Norwegian AIF Act. An analysis of the undertaking must be performed based on the structure, ownership, business, commercial purpose, governance structure, constitutional documents, sales material, and stakeholders, etc. Next, we will consider whether a particular element points to a corporate structure being an AIF or not. It should be underlined that this is a specific assessment which must be based on the facts of each case. A real estate company may hold a general commercial purpose and strategy. Management is involved in the day-to-day running of the company through actively operated property portfolios, acquiring real estate, developing property projects and managing tenancy relationships. There are several stakeholders in the management of the real estate company and a commercial purpose and substance which indicates that it is not an AIF. On the other hand, a real estate company, especially a single asset structure, may be deemed to be a vehicle for a financial investment where the goal of the investors is to obtain the cash flow and the rise in value. At the same time, in our view, it is possible to argue that rental business may be assumed to be a commercial purpose in itself, especially if the owners are involved in the day-to-day management. A single asset structure where all services are outsourced to an external asset manager, may indicate that the corporate structure is an AIF. Further, it will be significant whether the undertaking is viewed as a collective investment scheme or not. As set out above, the definition of an AIF presupposes that there will be “pooling of capital” in the undertaking to create a “pooled return” to the group of investors. Apart from that, the guidance on “collective investment schemes” is limited. In our view, it would be natural to look to the characteristics of a regulated securities fund (ie capital contribution rules, mechanism for pricing, redemption rules, predetermined time for the investments, etc), even if it is not comparable in all aspects. It may be submitted that a wholly owned company in a single asset structure lacks the element of a collective investment scheme. At the same time, as set out in their guidelines, ESMA does not rule out the possibility of there being only one investor in the AIF, provided that there is no legal restriction on the pooling of capital. We believe that starting point presupposes that the undertaking is viewed as a collective investment scheme. On the other hand, where an investment company or a single asset structure is established on the basis of (public) capital raising in the market and marketed as an investment opportunity, this will point the corporate structure in the direction of being an AIF. Another element is the requirement for a “defined investment policy”. The constitutional documents and the prospectus usually show whether a company operates in line with a defined investment policy or not. In our view, the requirement for an investment policy may be viewed differently in a single asset structure where the strategy is already “given”, than in an investment company which aims to invest in several asset classes and with a mandate. Finally, in the event that a foreign fund or regulated entity acquires the company which owns the property without establishing a Norwegian holding structure, it will most likely be viewed as a direct investment and not as a separate Norwegian AIF. Most managers registered in Norway are structured either as private limited liability companies or national funds/ special funds. NORTHERN EUROPE AND SCANDINAVIA—SAFE HAVENS WITH A FUTURE? | NORWAY 38 | REAL ESTATE GAZETTE GERMANY VERSUS UK—WILL SECONDARY LOCATIONS EVER REALLY MAKE IT? | GERMANY Due to increasing rents and property prices in Germany, investors’ interest in the commercial and residential real estate market continues to be strong. Most investors tend to focus on the seven prime locations of Frankfurt, Hamburg, Munich, Cologne, Berlin, Düsseldorf and Stuttgart. Recent studies have shown, however, that secondary locations are shedding their image as forgotten cities and may well offer excellent opportunities for investors. In Germany, secondary locations are defined as cities with more than 100,000 inhabitants that do not fall within the top seven locations (for example, Nuremberg, Bremen and Dortmund). A 2015 study by the real estate company, Corpus Sireo, has shown that in 2014, commercial rents in secondary locations increased by 3 per cent while in the top seven cities, commercial rents increased by only 1.8 per cent. In Mannheim, one of Germany’s sub-prime locations, commercial rents increased by an astonishing 10 per cent in 2014 whilst in the same period, office rents in the prime location of Cologne decreased by 1 per cent. One of the reasons for the burgeoning real estate market in secondary locations is that investors who still consider real estate in Germany to be a safe bet are encountering growing difficulties in obtaining adequate yields in the prime locations. Due to a lack of core properties and high prices, rents in prime locations do not increase at the same rate as the investment capital, encouraging investors to look at secondary cities. In order to make a rewarding investment in a secondary location, certain factors should be taken into account: 1. Demographic developments should be borne in mind when investing in a secondary location. While the population in the top seven locations is expected to remain stable or to grow in the future, many other regions in Germany are expected to suffer from population decline and ageing. Especially in Eastern Germany and in the Ruhr area, many cities are shrinking and it is by no means certain that the current HEINER FELDHAUS, COLOGNE HIDDEN PROSPECTS— INVESTING IN SECONDARY LOCATIONS IN GERMANY influx of refugees can reverse this trend. However, other cities in secondary locations like Ingolstadt and Kassel have experienced rent increases of 30 per cent in the last five years due to a growing population as a result of excellent economic development in these areas. 2. From a legal perspective, investments in secondary locations should generally meet the same criteria as investments in prime locations. Buyers of properties in any location should undertake a careful review of leases, service contracts, warranties, building permits, public law requirements, etc before investing. However, particular characteristics of secondary locations should be taken into account. A study by Colliers International Deutschland showed, for example, that commercial lease terms in secondary locations are statistically shorter than those in prime locations. Also, real estate investors in less advantageous locations should evaluate their target property very carefully, given that any deficiencies in a property in a secondary location tend to have a stronger negative impact than deficiencies in a property in a prime location, which can often be offset by the excellent location. 3. When investing in residential real estate, recent developments in German tenancy law should be borne in mind. In 2015, the German Bundestag introduced a rental cap (Mietpreisbremse), which is designed to cap the amount by which residential rents are permitted to rise in urban areas which are threatened by soaring rents levels. The law allows a maximum of a 10 per cent increase in rent on a new lease contract over an agreed rent table or index for the relevant district. Germany’s federal states have the power to designate areas within their jurisdiction which fall into this category. However, while the Mietpreisbremse has already been implemented in prime locations like Berlin, Munich and Cologne, many secondary locations like Hanover, Dortmund or Essen are not yet covered by any rental cap. This offers a further advantage for investors who can plan their investment in secondary locations without having to consider rent restrictions. 4. Another advantage may be the willingness of the local administration to cooperate. As it is more difficult for secondary locations to attract real estate investors, their administrations tend to be more willing to compromise when it comes to the question of compliance with public building law requirements such as zoning plans or the protection of historic buildings and buildings of cultural value. Therefore, the local administration in secondary cities is often willing to meet the individual needs of investors in order to attract them to their city. In summary, it is fair to say that Germany’s secondary locations offer interesting investment possibilities, combining the advantages of the stable German real estate market with affordable prices and attractive yields. ISSUE 23 • 2016 | 39 OMAN Penthouse, Al Manahil Building Al Sarooj Street, Shatti Al Qurum PO Box 200, Postal Code 134 Jewel Beach, Muscat T: +968 2464 7700 | F: +968 2464 7701 POLAND Warsaw Financial Centre Ul. Emilii Plater 53 Warsaw PL-00-113 T: +48 22 540 74 00 | F: +48 22 540 74 74 QATAR Level 9, Alfardan Office Tower, PO Box 25800 , West Bay, Doha T: + 974 4420 6100 | F: + 974 4420 1500 ROMANIA Metropolis Center 89-97 Grigore Alexandrescu Str. East Wing, 1st Floor Sector 1, 010624, Bucharest T: +40 372 155 800 | F: +40 372 155 810 RUSSIA Leontievsky pereulok, 25, Moscow 125009 T: +7 (495) 221 4400 | F: +7 (495) 221 4401 Nevsky pr., 28, bld. A (Zinger house), St. Petersburg 191186 T: +7 (812) 448 7200 | F: +7 (812) 448 7201 SAUDI ARABIA Level 20, Kingdom Tower PO Box 57774 11584 Riyadh T: +966 11 201 8900 | F: +966 11 201 8901 SLOVAK REPUBLIC Suche myto 1 SK-811 03, Bratislava T: +421 2 5920 2122 | F: +421 2 5443 4585 SOUTH AFRICA Graysand Office Park, 2 Sandton Drive Sandton, Johannesburg 2196 T: +27 (0)11 282 0692 | [email protected] SPAIN Paseo de la Castellana, 35 -2º 28046, Madrid T: +34 91 319 12 12 | F: +34 91 319 19 40 SWEDEN Stockholm Advokatfirma DLA Piper Sweden KB Kungsgatan 9 PO Box 7315, SE - 103 90, Stockholm T: +46 8 701 78 00 | F: +46 8 701 78 99 UAE Penthouse C2 Building Al Bateen PO Box 109950 Abu Dhabi T: +971 2 494 1500 | F: +971 2 494 1501 Level 9, Standard Chartered Tower, Emaar Square, Dubai T: +971 4 438 6100 | F: +971 4 438 6101 UKRAINE 77A Chervonoarmiyska Str., Kyiv 03150 T: +380 (44) 490 95 75 | F: +380 (44) 490 95 77 UNITED KINGDOM Victoria Square House , Victoria Square, Birmingham B2 4DL T: +44 (0) 8700 111 111 | F: +44 (0) 121 262 5794 Rutland Square, Edinburgh EH1 2AA T: +44 (0) 8700 111 111 | F: +44 (0) 131 242 5555 Princes Exchange, Princes Square, Leeds LS1 4BY T: +44 (0)8700 111 111 | F: +44 (0) 113 369 2949 India Buildings , Water Street, Liverpool L2 0NH T: +44 (0) 8700 111 111 | F: +44 (0) 151 236 9208 3 Noble Street, London EC2V 7EE T: +44 (0) 8700 111 111 | F: +44 (0) 20 7796 6666 101 Barbirolli Square, Manchester M2 3DL T: +44 (0) 8700 111 111 | F: +44 (0) 161 235 4111 1 St Paul’s Place, Sheffield S1 2JX T: +44 (0) 8700 111 111 | F: +44 (0) 114 270 0568 AUSTRIA Schottenring 14 A-1010, Vienna T: +43 1 531 78 0 | F: +43 1 533 52 52 BAHRAIN Trust Tower Suite 410 Diplomatic Area PO Box 65137, Manama T: +973 1650 0513 | F: +973 1650 0501 BELGIUM Brusselstraat 59, 2018, Antwerp T: +32 (0) 3 287 2828 | F: +32 (0) 3 230 4221 106 Avenue Louise, Brussels B-1050 T: + 32 (0) 2 500 1500 | F: + 32 (0) 2 500 1600 CZECH REPUBLIC Perlová 5 CZ-11000, Prague 1 T: +420 222 817 111 | F: +420 222 246 065 FINLAND Asianajotoimisto DLA Piper Finland Oy, Fabianinkatu 23, Helsinki, FI-00130 T: +358 9 4176 030 | F: +358 9 4176 0417 FRANCE 27 rue Laffitte, 75009 Paris T: +33 1 40 15 24 00 | F: +33 1 40 15 24 01 GEORGIA Melikishvili street # 10, Tbilisi 0179 T: +995 32 2509 300 | F: +995 32 2509 301 GERMANY Joachimstaler Str. 12, Berlin D-10719 T: +49 (0)30 300 13 14 0 F: +49 (0)30 300 13 14 40 Hohenzollernring 72, Cologne D-50672 T: +49 (0)221 277 277 0 F: +49 (0)221 277 277 10 Westhafenplatz 1, Frankfurt D-60327 T: +49 (0)69 27133 0 | F: +49 (0)69 27133 100 Jungfernstieg 7, Hamburg D-20354 T: +49 (0) 40 1 88 88 0 F: +49 (0) 40 1 88 88 111 Isartorplatz 1, Munich D-80331 T: +49 (0)89 23 23 72 0 F: +49 (0)89 23 23 72 100 HUNGARY MOMentum Office Building Csörsz u. 49-51. Budapest H-1124 T: +36 1 510 1100 | F: +36 1 510 1101 ITALY Via Gabrio Casati 1 (Piazza Cordusio) - 20123 Milan T: +39 02 80 61 81 | F: +39 02 80 61 82 01 Via dei Due Macelli 66 - 00187 Rome T: +39 06 68 88 01 | F: +39 06 68 88 02 01 KUWAIT Suad Commercial Complex 3rd Floor, Block A PO Box 22833, Safat 13089, Kuwait City T: +965 2291 5800 | F: +965 2291 5801 MOROCCO Business Center, Tour Crystal 1 10th floor Boulevard des Almohades Casablanca 20000 NETHERLANDS Gebouw Meerparc Amstelveenseweg 638 1081 JJ Amsterdam T: +31 (0)20 541 98 88 | F: +31 (0)20 541 99 99 NORWAY Advokatfirma DLA Piper Norway DA Bryggegata 6 PO Box 1364, Vika, 0114 Oslo T: + 47 24 13 15 00 | [email protected] Image credits: Shutterstock KEY CONTACTS EMEA Olaf Schmidt Co-chair, Global Real Estate Practice Head of International Real Estate Milan, Italy T +39 02 80 618 504 | F +39 02 80 618 201 [email protected] US Jay Epstien Co-Chair, Global Real Estate Group Washington, DC T +1 202 799 4100 | F +1 202 799 5100 [email protected] ASIA Susheela Rivers Head of Asia-Pacific Real Estate Hong Kong, People’s Republic of China T +852 2103 0760 | F +852 2810 1345 [email protected] AUSTRALIA Les Koltai Head of Australia Real Estate Melbourne T +61 2 9286 8544 | F +61 3 9274 5111 [email protected] UK Ian Brierley Head of UK Real Estate London T +44 207 796 6232 | F +44 207 796 6666 [email protected] GERMANY Carsten Loll Head of Real Estate Germany Munich T +49 (0)89 232 372 150 [email protected] DLA PIPER OFFICES www.dlapiperrealworld.com