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The primary source of global real estate investment news and analysis ISSUE016 18 April 2017

The amount raised by closed-end private real estate funds, and the number of funds that closed in Q1 2017 declined significantly compared to the previous quarter, according to a Preqin fundraising update.

A total of 38 funds reached final close in Q1 2017, raising $15 billion.

Although the figure is expected to rise by around 10 percent as more information becomes available, it remains drastically down from the 72 that closed in Q4 2016, raising a total of $32 billion.

Furthermore, Q1 2016 saw 82 funds close, raising $26 billion.

Andrew Moylan, head of real estate products at Preqin, said: “The private closed-end real estate industry has been in a prolonged period

Fundraising slows for Q1 2017of strong fundraising activity in recent years: funds closed since the start of 2013 have raised more capital than even those closed in the 2006 to 2008 period.”

Moylan noted that there are still a number of multi-billion dollar funds currently in the market that “may well be on course to reach a final close before the end of the year”.

He said: “If this does happen, we could see 2017 rise to match 2016 as another landmark year for the industry.”

Generally, capital was spread across funds, with no fund raising less than half of its target, compared to 9 percent of funds last year. Competition from funds has also increased since the beginning of 2017, with 21 fund-raising vehicles entering the market, bringing the total to 554.

Continued on page 2

West End investment hits £1.93 billion in record first quarter in 2017

Investment into commercial property in London’s West End hit record levels in Q1 2017, with £1.93 billion invested, despite lingering concerns over Brexit.

The figure surpassed the previous record of £1.8 billion set in 2013, and exceeds the five-year Q1 average by 22 percent, according to Cushman & Wakefield.

Investors from Asia were the driving force behind the record numbers, which were inflated by several large deals.

Major deals included Cushman & Wakefield’s sale of the Ampersand Building for £260 million, on behalf of a private Hong Kong family; CC Land’s £292 million acquisition of One Kingdom Street; and Deka’s purchase of Great Portland Estates Facebook Campus in Fitzrovia for £435 million.

Elsewhere, the City of London also had a strong first quarter, recording £2.25 billion of transactions, a 9 percent increase on Q1 2016, largely driven by CC Land’s acquisition of The Leadenhall Building from British Land and Oxford Properties, for £1.15 billion.

Continued on page 2

Redefine secures Leopard portfolio

Redefine International has invested €49 million to take full control of its German Leopard Portfolio joint venture, valued at £175.5 million.

The company’s stake in the 66-strong retail portfolio will rise from 50 percent to 94 percent, leaving its partner Redefine Global with the remaining 6 percent.

Redefine International will take on the portfolio’s existing debt of €86.1 million, which was reflected in the deal price.

Producing initial yield of 7.4 percent, the properties generate gross rental income of €13.9 million.

Continued on page 2

News Round-Up

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Fundraising slows for Q1 2017Continued from page 1

Despite the increase in closed-end private funds, capital being sought remains at $189 billion, while dry powder increased to $245 billion, suggesting capital is available.

Geographically, 27 North American funds closed in Q1 raising $12 billion, while the six closed in Europe raised $2.1 billion. Cerberus Institutional Real Estate Partners IV was the largest fund to close, raising $1.8 billion.

West End investment hits £1.93 billion in record first quarterContinued from page 1

According to Cushman & Wakefield, investors from Asia accounted for 72 percent of activity in The City. UK investors, however, were net-sellers over the quarter, disposing of £1.27 billion while acquiring £369.3 million of stock in The City.

Richard Womack, head of West End capital markets at Cushman & Wakefield, said that Hong Kong investors “accounted for just under half the total quarterly volume, enticed by the West End’s wealth preservation characteristics as well as the currency advantage enjoyed by non-sterling investors”.

James Beckham, head of London capital markets at Cushman & Wakefield, said: “There is no shortage of capital targeting commercial property, the challenge for investors has been accessing suitably-priced stock.”

Stock levels in the West End are currently very low, helping maintain prime-yield levels across a majority of sub-markets.

Beckham added: “Exchange rates play a significant role in that and sterling’s depreciation has benefitted investors from the Far East, especially those from Hong Kong and mainland China, who can also move quickly in this market.”

Current availability stands at £2.84 billion in The City and its respective sub-markets.

The uptick in investment looks soundly placed as, according to JLL, office take-up in the West London and the Thames Valley regions hit 400,000 square feet in Q1 of 2017.

Redefine International pounces on German Leopard portfolioContinued from page 1

This income represents a €5.4 million rise in gross rental income for Redefine International. The acquisition will be funded with cash from the sale of Redefine International’s VBG German offices portfolio, from which it received net proceeds of €24.9 million.

Located throughout Germany, the portfolio spans over 138,000 square metres and comprises supermarkets, retail parks and cash and carry stores.

Mike Watters, CEO of Redefine International, said: “In line with our strategy, this transaction represents a good opportunity to recycle capital into assets which generate a strong income yield, having sold the VBG portfolio of German offices at an 8.6 percent premium to book value.”

He added: “Furthermore, our controlling interest in the portfolio will provide more flexibility over future asset management initiatives and reinvestment decisions.”

Joint venture invests £116 million in private rental sector portfolio

Invesco Real Estate and Platform_, a national developer in the UK, have established a joint venture for the management of a private rented sector (PRS) portfolio.

The partnership will invest £116 million in 580 homes across five cities, including developments

Inside Real Estate Investment Times ISSUE016 18 April 2017

News Round-UpIndia’s real estate market saw 19 investments worth $3.42 billion in Q1 2017

page 3

News Round-UpInvestec Structured Property Finance has provided £47.7 million to finance a student accommodation scheme in London page 6

Alternatives TechReal estate is suffering from a lack of liquidity, and investors are looking for innovative new solutions to the problem

page 10

News Round-UpThe Brexit negotiations will be a litmus test for responsible financial globalisation

page 4

UK-REITA decade has passed since its inception, and there hasn’t been a more sensible time to invest in the UK-REIT

page 8

People MovesNew industry appointments at AXA Investment Management, Mack-Cali and Raintree partners

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in Bracknell and Exeter, which launched in April 2016 and July 2016, respectively, and are now fully established.

Developments in Bedford, Crawley and Stevenage launched in March 2017 and, according to the joint venture, are expected to be stabilised by the end of the summer.

Each development represents its town’s first homes designed specifically for rent. They include amenities such as gyms.

The announcement of the joint venture comes after the February release of a housing whitepaper from the UK government, encouraging institutional investment into the PRS, and suggesting that demand is far outstripping supply in the sector.

The government has supported the build-to-rent scheme in the UK through a £3.5 billion Private Rented Sector Housing Guarantee Scheme, and a £1 billion Build-to-Rent Fund.

According to Platform_, the portfolio was built by taking advantage of lax planning laws allowing office space to be converted into new homes.

Deal Sheet

News Round-Up

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Jean-Marc Vandevivere, CEO of Platform, said: “We intend to build on this first portfolio deal to continue our expansion, as we seek to become Britain’s leading build to rent brand, combining thoughtful design with professional management and a tech-savvy approach to the customer experience.”

He added: “This deal marks a huge vote of confidence in the UK PRS sector, and demonstrates there is clear investor appetite for quality, high-spec product outside of major cities with proven asset managers.”

John German, senior director of residential investments at Invesco, commented: “This investment for our large scale UK PRS programme aims to provide long-term income returns for our investors.”

He added: “A fundamental part of our programme is to work with reputable partners to ensure our units are designed and built for purpose, and that operational efficiencies exist with an on site property manager.”

“We are therefore pleased to be working with Platform_ on this first portfolio, and potentially other exciting opportunities for our growing and diverse portfolio.”

M7 closes first Central European fund

M7 has closed its Central European Real Estate Fund I (M7 CEREF I), reaching its €60 million target before acquiring a Logistics Park in Hungary.

The final close raised €25 million, adding to €35 million raised in the fund’s first close in October 2016. The fund is M7’s first Central European fund for third-party investors.

M7 has also agreed a €68.5 million senior debt facility with Starwood European Real Estate Finance, on behalf of M7 CEREF I.

Following the close of the fund, M7 acquired a 64,600 square metre Aerozone Logistics Park in Budapest for a price understood to be in the mid-double-digit millions. A further €65.5 million is expected to be invested imminently.

Located next to Budapest airport, the logistics park is a Grade-A property with wide range of national and multinational tenants. It was sold by Union Investment and CA Immo Group.

According to Frank Nickel, CEO of CA Immo, the sale means CA Immo has completed its withdrawal from the logistics space, selling 500,000 square metres of warehouse assets since 2012, “to underpin profitable growth in our core business of offices”.

M7’s acquisitions of the Mani Business Centre in Zagreb and Oregon house in Prague,

India real estate deals hit $3.42 billionMumbai | Reporter: Mark Dugdale

India’s real estate market saw 19 investments worth $3.42 billion during Q1 2017, according to Venture Intelligence.

The research firm’s latest report on Indian private equity investments in real estate identified a 66.4 percent increase in value over the previous quarter’s $2.05 billion, from 24 transactions.

The January-to-March quarter was also up on the same period in 2016, when 18 transactions worth roughly $1.26 billion were completed.

According to Venture Intelligence, the commercial segment dominated transactions, with Singaporean wealth fund GIC investing $2.14 billion in real estate developer DLF’s rental arm.

The commercial segment experienced an all-time high in investment, worth $2.6 billion across five transactions during the quarter, Venture Intelligence reported.

The next largest deal reported during Q1 2017 was Blacktone’s $250 million investment in a 15 percent stake in the office holding company of K Raheja Corp.

Canadian pension fund Caisse de dépôt et placement du Québec also committed to setting up a real estate investment platform with Piramal Enterprises by contributing $250 million.

Union Investment has acquired the Rathaus-Galerie shopping centre, valued at €220 million, on behalf of its Unilmmo:Europa fund.

The 36,300-square metre property in Leverkusen, Germany, was sold by the open-ended real estate fund CS Euroreal, managed by Credit Suisse Asset Management (AM) Immobilien KAG.

Actual terms of the sale were not disclosed.

The property also includes a 2,200-square metre office and retail space adjacent to the Rathaus-Galerie centre.

The complex forms part of the Melody portfolio, which Union Investment signed a purchase agreement for in December 2016.

The shopping centre contains 121 outlets and is nearly fully let.

Major retailers include H&M, C&A and Saturn and Thalia, while 5,000 square metres is used by the City of Leverkusen.

ECE Projektmanagement will continue to manage the property after completion.

Rasmala and KAMCO have acquired Amazon’s largest warehouse in the UK, in Dunfermline, Scotland, for £61 million.

The shed stands at over a million square feet, and is fully let to Amazon UK Services.

It is located close to the north of England as well as major Scottish cities including Edinburgh, Glasgow and Aberdeen.

The acquisition was led by Rasmala and was financed through a combination of equity and debt, with the latter covering 60 percent of the purchase price.

According to Rasmala, the investment will aim for an annual cash dividend yield of 6.5 percent per annum, with an expected internal rate of return of 7 percent.

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both acquired immediately after the fund’s first close, are not included in the Starwood debt agreement.

According to M7, the fund’s remaining pipeline, which has been fully identified, is targeting Core Plus and high-yielding regional opportunities in the Czech Republic, Croatia, Hungary, Poland and Slovakia.

David Ebbrell, chief investment officer at M7, said: “The acquisition of the Aerozone Logistics Park demonstrate how we are able to utilise our pan-European network to identify assets in prime locations across Western Europe, Central and Eastern Europe and the Nordics, which offer the opportunity for active asset management to deliver value to our investors in line with the individual strategies we have created for them.”

Richard Croft, chief executive of M7, said: “Having put our first tranche of investor capital to work in October, the additional investor capital raised, together with the senior debt facility with Starwood will allow us to proceed with the deals identified and to have the fund fully invested during the next four to six weeks.”

He added: “We have a number of asset management initiatives planned in order to drive value across the portfolio and deliver exceptional returns to our investors.”

PGIM puts up £50m for London office

PGIM Real Estate Finance has provided a £50.1 million loan for the acquisition of Fox Court, in Central London, to an unknown investor.

US-based shared workspace provider WeWork is currently the main tenant of the 103,555-square foot office, which is thought to be worth in excess of £100 million, and is set to benefit from London’s rail project Crossrail.

Built in 1976, the building underwent its most recent renovation in 2015, when WeWork became the main occupier.

According to PGIM, the tenant mix of the area has diversified over the past couple of years, as technology and financial firms move into an area traditionally dominated by legal firms.

Aaron Knight, director at PGIM London, said: “The growing demand for flexible space provides an interesting opportunity to finance a non-traditional office sector, particularly as PGIM continues to expand its debt offering.”

He added: “Given the improvements in the variety and quality of office space available, we expect [the area] to withstand any potential Brexit impact because of its diverse tenant mix, which also has strong ties to the resilient legal profession.”

Carney: Brexit to challenge globalisationLondon | Reporter: Mark Dugdale

How the Brexit negotiations conclude will be a litmus test for responsible financial globalisation, Bank of England head Mark Carney has said.

Carney’s speech on financial services, delivered at Thomson Reuters in London’s Canary Wharf on 7 April, came a week after the UK triggered Article 50 and commenced the two-year period for negotiating its exit from the EU.

“The UK and the rest of the EU have exactly the same rules governing our systems,” Carney said. “And we have the most highly developed frameworks for intensive supervisory cooperation. Capital flows seamlessly across our borders. The current EU legal regime allows firms to passport throughout the union, supervised by the home supervisor.”

As it stands, the EU and the UK are “ideally positioned to create an effective system of deference to each other’s comparable regulatory outcomes, supported by commitments to common minimum standards and open supervisory cooperation”.

Such an outcome would be “entirely consistent” with the UK government’s aim of a “new, comprehensive, bold and ambitious: free trade relationship with the EU that “embraces goods, services and network industries”.

But financial services are only part of a much broader negotiation, Carney conceded, so contingencies need to be put in place in case the status quo changes.

He said: “How the Brexit negotiations conclude will be a litmus test for responsible financial globalisation.”

“Whatever is agreed [during Brexit negotiations], there are risks to financial stability both in the transition to the new relationship and in the new steady state. These risks include disruption of services, a further weakening of investment banking profitability and the potential for greater complexity in firms’ legal structures.”

Barings Real Estate Advisors has acquired a logistics park in Madrid from GLL Real Estate Partners, for €35 million.

The 56,000-square metre property is located on the A4 corridor connecting Madrid with southern Spain. It is currently fully let to Ceva, a logistics and freight management business, which recently renewed its lease.

According to Barings, the company is hoping to capitalise on a heavily under-supplied area, with GDP growth and rising employment rates, plus a trend of increasing internet sales.

The purchase continues Barings’s expansion in Spain, following the acquisition of an office space in 2015 and a retail space in 2016, both in Madrid.

NAMI - AEW Europe has acquired the Louise Center office building in Brussels for €54 million, on behalf of its OPCI Franceurope Immo Fund.

The 16,146-square metre office building, acquired from AXA IM, has over 30 tenants including The United Nations, and is currently 90 percent occupied.

Fully renovated in 2014, the office building offers flexible working spaces, and holds a Building Research Establishment Environmental Assessment (BREEAM) rating of excellent.

Axa Investment Management (IM) - Real Assets has acquired the Warwick build in London, on behalf of its AXA CoRE Europe Fund, for £56.6 million.

The 79,506-square foot fully-let office building was sold by Legal & General on behalf of its Bishopsgate Long Term Property Unit Trust.

Located within Kensington Village, next to Battersea Park, the Victorian warehouse comprises five storeys with planning permission to develop two more, potentially adding 25 residential units.

The property sits a six-minute walk from underground and overground stations, and around 10 minutes from major London stations including Paddington, Victoria and Clapham Junction.

Trion Properties and DVO Real Estate have acquired Bel Brook and Hideaway apartments in San Leandro, California, for $36.6 million.

The joint venture purchased the 146-unit residential property, located at at 77-85

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Bryan McDonnell, principal at PGIM’s London office, added: “This transaction is an example of increasing demand in the market for core plus and value add properties.”

He said: “Borrowers who are faced with high single tenant concentrations and near term lease roll, or those seeking higher whole loan leverage, are looking beyond the typical core lending market.”

Imperial Treasure in Waterloo Place let

Barings Real Estate Advisers has let the landmark building 8-10 Waterloo Place in St James’s, London, to Asian fine-dining restaurant Imperial Treasure, on a 25-year lease.

The restaurant will occupy the 8,500-square foot space comprised of a mezzanine and ground and basement floors. It will open in 2018.

This is the Michelin-starred restaurant chain’s first venture into the UK market.

The rest of the building is made up of 23,000 square feet of office space across five floors, due to be opened in April.

Dating back to 1910, the Grade II Listed property underwent a refurbishment in 2014 after being acquired by a client of Barings.

Ian Mayhew, senior director of UK asset management at Barings, said: “There was a great deal of interest in 10 Waterloo Place, St James’s from both domestic and international operators. With its award-winning cuisine and high-end experience, Imperial Treasure is exactly the type of occupier we wanted to bring to the scheme.”

He added: “This restaurant pre-letting is a strong endorsement of our ongoing asset management strategy and we believe that the exceptional finish of the building, together with its enviable St James’s location, will be a major draw for prospective office tenants.”

Imperial Treasure was recently awarded two Michelin stars and was voted among the best 50 restaurants in Asia. It has 30 locations in Singapore, Hong Kong and China.

Alfred Leung, CEO of Imperial Treasure, said: “When we identified this world class opportunity, we were very pleased to work with Barings Real Estate Advisers to introduce the very fine Chinese cuisine of Imperial Treasure to London’s residents and visitors.”

Colliers International’s Central London restaurants team counselled Barings, while Savills acted for Imperial Treasure.

Do you have a story we should cover?Let us know via:

theoandrew@blackknightmedialtd.com

Investec puts up £47.7 million for London student developmentLondon | Reporter: Theo Andrew

Investec Structured Property Finance has provided £47.7 million over two years, to finance a student accommodation scheme in Walthamstow, London.

The senior debt loan to Curlew Student Trust (CST) will go towards developing a 527-bed, Grade-A, purpose-built student accommodation building.

Mannequin House, adjacent to Blackhorse Road underground and overground stations, will be accessible from central London within 20 minutes.

The development, forward funded by CST, is scheduled to be completed in July of this year and open in time for the 2017/18 academic year.

Mark Bladon, property lender at Investec, said: “The student accommodation sector remains one of the most attractive asset classes for investors, as the UK faces an ongoing supply-demand imbalance in certain sub-markets.”

“London in particular, where we are building a track record of providing bespoke debt facilities for leading developers on competitive terms, will continue to see a requirement for brand new purpose-built space, as the global leader in the provision of quality higher-education.”

London has 4.19 students per purpose-built bedspace, according to Student Market Analysis and a JLL market report.

Bladon added: “This facility, which straddles both the development phase and an investment period, allows us to commit to the scheme as it becomes income generating and we look forward to working alongside one of the sector’s most successful and respected investors.”

Brett Robinson, director at Curlew Capital, said: “Student accommodation continues to deliver market leading returns and Curlew is pleased to have arranged finance with a credible lender that is experienced in this sector and who we look forward to building a lasting relationship with during this project.”

Estabrook Street in East Bay, from the John Sullins family.

Currently 94 percent occupied, the property is within walking distance to a Bay Area Rapid Transit station and a mile away from the San Leandro Technology Campus, a 750,000-square foot mixed-use development, expected to bring 1,800 tech jobs to the area.

Technology giant Tesla currently resides in the area, while Uber is planning to move its corporate headquarters to Oakland.

The purchase was financed by Continental Partners through NXT Capital.

Capstone Asset Management (AM) has acquired the online fashion retailer Zalando’s headquarters in Berlin for €196 million.

The South Korean asset manager bought the development, due to be completed in Q3 2018, from UBM Development.

The ‘open city campus’ will comprise two office buildings of approximately 29,000 and 13,000 square metres, respectively.

The work space will be adjustable in order to accommodate to the changing size of the team and varying nature of work.

It is expected to receive a DGNB Gold certification from the German Sustainable Building Council on completion.

Thor Equities has expanded its Paris portfolio, acquiring 54 Rue de Rennes in Paris for €15 million.

The property offers 267 square metres of retail space on the corner of Rue Bernard Palissy in the left bank of Paris.

Currently leased to the Italian fashion company Stefanel, it is positioned among the prime shopping streets in Paris, home to high-end brands including Cartier and Rolex.

Hines has partnered with an Oaktree Capital Management fund to acquire the Dublin Corporate Centre in Dublin, California.

The 440,266-square foot centre is made up of three office buildings, and sits on an 18-acre campus.

Located in the Tri-Valley submarket It is currently 83 percent let to tenants including Epicor Software and iTrade Networks.

Hines plans to upgrade the class-A campus to capture current market leasing rates.

Access the World with Local Relationships

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Whether you need to buy, sell, lease, finance, or manage commercial property in your market or around the world, your nearby NAI Global Member is your local point of entry into a world of cohesive, creative solutions in commercial real estate.

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UK-REITsTheo Andrew reports

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With 10 years passing since the introduction of the UK-REIT, why does it remain a popular choice for international investors?

The principal attraction for the UK-REIT remains the favourable tax treatment afforded by HM Revenue & Customs. It benefits from an exemption from UK corporation tax on property investment income and capital gains.

Of course, there are various conditions that must be met, but this is good news for international investors who will want to see their share of UK-REIT profits taxed in their home jurisdiction. The savings can be significant, coupled with the benefit of investing on a pooled basis and spreading investment risk between sector, type, number and geography of properties.

The conditions for qualifying have also gradually become more permissive. For example, institutional investors are now excluded from the ‘close company condition’, which means that it is now possible for a limited number of institutional investors (even one) to control UK-REITs. In addition, for international investors, the UK-REIT may be seen as offering easier exposure to property than by way of direct investment, and providing access to types of property that such investors may not be able to access alone. UK-REITs are also required to list on a recognised stock exchange, such as the London Stock Exchange or the International Stock Exchange (TISE) in the Channel Islands, where a quarter of UK-REITs are currently listed, which means that investors benefit from the potential liquidity of owning a traded security.

Listing on a recognised exchange also gives comfort to investors that the UK-REIT is subject to a suitable level of governance and oversight.

Have they been affected by the UK’s decision to leave the EU? The strong likelihood is that the UK-REIT will not be affected significantly by the UK’s decision to leave the EU. Although some overseas property investment is permitted, the UK-REIT is predominantly a UK property product and the income that can be made from UK property remains in steady demand from within the UK and internationally.

In the short term, there may be some concerns about the marketability of UK-REITs to EU investors given the restrictions under the Alternative Investment Fund Managers Directive (AIFMD), however, national private placement regimes (NPPRs) continue to work well, particularly for entities domiciled in the Channel Islands.

In fact, in relation to financial services, the third country status of Guernsey and Jersey vis-à-vis the EU is entirely clear and will be unchanged by Brexit. This is good news for the UK-REIT as the Channel Islands continue to offer certain and durable options for structuring funds and fund management operations. Why is structuring them through the Channel Islands a sensible choice? There are multiple reasons why structuring UK-REITs through Guernsey or Jersey makes sense, including:

A decade has passed since its inception, and there hasn’t been a more sensible time to invest in the UK-REIT, says Craig Cordle of Ogier in Guernsey

On the REIT track

UK-REITs

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• Distributions in both Guernsey and Jersey are permitted to be made on a solvency basis, meaning the process of making distributions can be a lot more straightforward than with a UK company.

• Stamp duty is not payable on the transfer of shares in a Guernsey or Jersey company. This is one of the great attractions of Channel Islands companies. This is particularly relevant to the easy entry and exit of investors in UK-REITs, and is a positive for liquidity.

• Protected and incorporated cell companies are recognised under the laws of Guernsey and Jersey. Where ring fencing of assets and liabilities is important, the availability of these vehicles can assist greatly in structuring UK-REITs.

• If listing on TISE, UK-REITs are exempt from the free-float rule requiring 25 percent of the issued share capital to be held in public hands. The availability of this exemption may be particularly attractive to a smaller number of institutional investors investing for the long term and where liquidity is not a priority.

In addition, Guernsey and Jersey already meet the conditions set out in the AIFMD under Article 36 (being the conditions for EU managers marketing third-country funds to EU investors under NPPR) and Article 42 (being the conditions for third-country managers marketing funds to EU investors under NPPR). The Channel Islands have been operating successfully within NPPR since 2013 with cooperation agreements having been entered into with the competent authorities of 25 of the 27 EU member states (that is, all except Austria and Italy).

Guernsey and Jersey are two of only five third-countries that have, to date, been positively assessed by the European Securities and Markets Authority (ESMA) for the purposes of extending the AIFMD marketing passport. Both jurisdictions have already implemented fully compliant AIFMD regimes in anticipation of the availability of the passport, for those Guernsey or Jersey managers that wish to be prepared once a passport becomes available to them, including where a member state automatically switches off its NPPR.

Following Brexit, the timetable for the third-country passport is now unclear, however, our experience tells us that, in most cases, managers tend to market to investors in only very few EU member states. Therefore, marketing under NPPR is a straightforward and far less costly option than marketing under the AIFMD passport.

More generally, there is a wealth of expertise in the Channel Islands in the areas of portfolio and risk management, compliance and reporting, delegation and outsourcing models, and management company services. The tax system is straightforward and not subject to change and management companies are able to operate on a zero-percent corporate tax basis. In addition, UK-REIT overheads may also be lower with service providers based out of London operating in Guernsey and Jersey.

Guernsey and Jersey have led the way in adopting global best practice in transparency and anti-corruption, while maintaining confidentiality and privacy for businesses wishing to protect legitimate commercial interests. Furthermore, the Channel Islands are easily accessible from a number of UK airports, making access and attendance at board meetings very easy. What are the main opportunities for UK-REITs going forward? Existing UK-REITs and those managers considering establishing their own UK-REIT should continue to take advantage of the UK-REIT’s unique proposition for investment into UK property, especially with Brexit in mind. In addition, for the international investor with a strong home currency vis-à-vis sterling, they can continue to take advantage of an additional uplift in value when investing. Of course, if the value of the pound rises comparatively against an investor’s home currency, then their returns could be reduced, assuming they wish to convert back to their home currency and absent any currency hedging that may be put in place.

What are the main obstacles?

As with many asset classes, there is always a danger that the market may become saturated with competing products and that investors’ allocations to UK property may become full. This may, in time, make establishing new UK-REITs a little harder, particularly if existing larger UK-REITs remain open to new investment. It’s generally easier to grow an existing fund through secondary fundraising, rather than building a new book leading up to the initial public offering of a new UK-REIT. However, for the right investment proposition, there is plenty of dry powder and sub-sectors into which UK-REITs are yet to venture. As noted above, currency plays an important role for the non-sterling investor and a stronger pound may gradually dampen the attractiveness of UK-REITs for the international investor. Some financial commentators have started to say that they expect to see a noticeably stronger pound by the end of 2017 and into early 2018, which may have an impact on non-sterling investors investing in UK-REITs.

The tone of the forthcoming Brexit negotiations and the terms of any exit agreement that may be reached will be important to the value of the pound. Of course, many international investors will hold sterling accounts and so currency values may be less relevant to them. Finally, Base Erosion Profit Shifting (BEPS) Action 4, which relates to the deductibility of interest, may have an impact on the UK-REIT regime, however, the impact of the implementation of the full suite of BEPS sections on the UK-REIT (and certain investment funds generally) currently remains unclear. REIT

Craig Cordle, Group partnerOgier Group

Following Brexit, the timetable for the third-country passport is now unclear

Stephanie Palmer reports

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A lack of liquidity is driving real estate investors to looking at innovative solutions to the problem, says Brendan Bradley of Global Alternatives

Prop-X to you

The Global Alternatives Prop-X exchange is set to launch in Q2 or Q3 2017. What led up to development of the exchange?

Interest in property derivatives is essentially being driven by a lack of liquidity. If you consider real estate as an asset class, the actual allocation is quite significant from an institutional fund manager’s perspective, but there isn’t a liquid way of accessing the marketplace.

This isn’t a new issue, and we have seen property derivatives products in the past. If a fund manager is looking to invest in a physical product, there is typically a long timeframe between starting the process and actually owning the asset, and prices can move in the interim, while the manager is making a determination on assets.

The idea is that a manager can use these products as a proxy in the interim, gaining exposure through derivatives until such a time as he gets into the physical asset itself. Another angle is to consider the likelihood of the value of commercial property dropping. Managers could use this kind of product to hedge themselves. Those products are still out there. They don’t trade a huge amount, but there is interest and that is increasing.

Prop-X will list securities originated by Global Alternatives’s Property Crowd platform. Crowdfunding itself, and the idea of crowdfunding in property, effectively shows the market is broken. We have been focusing on bridging loan financing, and in an ideal world, that would be a service provided by the banks. Currently it’s not, and I don’t see any way around that at the moment.

Given the amount of money banks have taken on board from the government and other sources, and other capital adequacy concerns on top of that, I don’t see them having either the risk appetite or the ability to do a lot of the things they used to.

Someone has to pick up the slack. In traditional markets such as cash equities and bonds, high-frequency or algorithmic traders would generally have stepped up.

However, property remains an illiquid asset class, simply because the physical asset takes so long to move.

Are there other ways the industry can get around this?

Perhaps in the long term. There are things that should come into play to move the industry forward in this regard, whether that’s earlystage financial technology firms working on conveyancing—which should only take a day, not six weeks—or putting land registry on a blockchain. There are a whole ream of things the industry could be doing, but we’re starting from a point to building liquidity into the marketplace.

The way to do that is to find new sources of funds that want to allocate assets to real estate and need a different vehicle in order to do that. The vehicle we’re seeing now is going back to the syndicated loan market, which saw banks running various different loans to the institutional space.

For real estate, we can bring this down to a lower level, allowing either crowd or institutional money to come in. Longerterm, we would see the bigger institutions getting involved, but they will need to see more liquidity first.

Where does the Property Crowd platform come into it?

Property Crowd was a starting point from which to get more people involved in crowdfunding deals, akin to primary issuance. So Prop-X is a natural extension of that, as it offers secondary market liquidity. We are looking at extending the model to institutions that can gradually build it out for larger transactions and larger deals.

Alternatives Technology

11

That way, instead of just sourcing from a crowd, you’re sourcing institutional money and offering the opportunity for institutions to pivot if they need to.

Even traditional real estate buyers are looking for tactical asset allocation. If we use the derivatives example, perhaps a firm doesn’t want to fully get out of its position in London offices, but wants to be involved in shopping centres in the North East of England for a given period of time. Having the ability to do that on a short-term basis, and to get in and out of a position tactically, could be very valuable.

There was an issue with property funds following the UK’s vote to exit the EU—they had to close their doors because they didn’t have the liquidity available to pay out. If they had had something liquid alongside their property funds they may not have been in that position. The ability for tactical asset allocation over a period of time

is immense and, given the size of the real estate market, there should be much more flexibility.

Is this something you saw a demand in the market for?

From my personal experience of the derivatives market, to get oldschool property guys to move into derivatives can be a long hard slog, but Prop-X is something of a halfway point for them, because at least there is still a physical asset involved. Moving forward, the principle will be there, and we can see what kind of other asset classes we can apply the theory to.

Real estate should be the first, because it’s the biggest, but there are other asset classes that may be a bit esoteric to some investors but have a huge amount of money in them and that need liquidity.

The demand is definitely there. REIT

Brendan Bradley, ChairmanGlobal Alternatives

The ability for tactical asset allocation over a period of time is immense

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AXA Investment Management (IM) - Real Assets has appointed Natalie Savier Lacour as senior development manager for France.

Lacour will be responsible for sourcing and tracking real estate development projects in France, with the aim of diversifying clients’ asset allocations. Based in Paris, Lacour will report to Germain Aundias, global head of development at AXA IM Real Assets.

Lacour joins from Nexity Company, where she was director of development, a role she held since 2015.

Previously she was development director at Sefri-Cime, and prior to this she was director of tertiary programmes at Cogedim.

Raintree Partners has appointed Annette Thurman as senior director of asset management and Ian Couwenberg as director of acquisitions, to manage the expansion of its portfolio.

Thurman, who joins from Alliance Residential Company where she was senior vice president for the Northwest, will be responsible for overseeing Raintree’s capital improvement programme.

She previously held senior positions at Riverstone Residential and Fairfield Residential.

Couwenberg most recently served as vice president of acquisitions and dispositions for Sack Properties.

He started his career at CBRE as a multi-family broker, before spending nearly five years as director of investments at Equity Research.

Jason Check, managing director at Raintree Partners, said: “Ian Couwenberg and Annette Thurman are seasoned professionals with the critical skills to continue our forward momentum while maintaining our high standards of excellence.”

The appointments are intended to capitalise on and maintain Raintree’s current growth. The company now owns nearly 5,000 units in California and has recently widened its scope to acquire both small and larger properties.

According to Raintree, the firm plans to invest $23 million into portfolio-wide improvements in 2017.

Check said: “As property operators with an owner’s perspective, we recognise the opportunity to improve our assets strategically in order to grow rents, drive ongoing occupancy, and create the best resident experience possible.”

Aaron Hancock, managing director at Raintree Partners, commented: “We have been extremely active in the market in recent months, increasing our existing portfolio by 25 percent.”

He added: “We continue to draw upon our expertise in this multifamily niche in order to identify acquisition and development opportunities where we can create and maintain long-term value.”

Mack-Cali has appointed Michael De Marco as CEO, replacing Mitchell Rudin, who becomes vice-chairman of the company.

Previously president and COO, DeMarco will assume the day to day leadership of the company in partnership with the board. He will be assisted by Rudin, who is entering a newly-created position.

Comings and goings at AXA Investment Management, Raintree and Mack-CaliDeMarco joined Mack-Cali as president and COO in 2015. Prior to joining the company, he was chief investment officer at Cantor Commercial Real Estate, as well as executive vice president at Vornado Realty Trust.

Rudin joined Mack-Cali as CEO in 2015. Previously, he was president and chief executive officer of US commercial operations at Brookfield Office Properties, and before this he was president of brokerage services at CBRE.

DeMarco said: “[We] are extremely enthused by the success of our transformation thus far and by the opportunities to continue to grow our dual, office and multi-family platform focused on the Hudson River Waterfront and transit-based markets.”

He added: “We couldn’t be more confident in the direction of the company, our revitalised culture, and our improving operations and balance sheet.” REIT

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