When I volunteered to write a guest blog (for our funds team) this month, I must admit I was slightly filled with dread when they said yes with (in my view) rather inappropriate amounts of enthusiasm. What do I know about offshore funds as a corporate and commercial lawyer, who has more recently been turning her hand to corporate restructurings in a flattish transactions market? Well, the answer is in fact quite a lot about what offshore funds are being used for, particularly in the property market in the UK.
I regularly act for residential and commercial property investors and those who lend to them and I also have a (probably) slightly unhealthy interest in Rightmove’s sold property prices. What better credentials do I need?
With a real estate property magnate in the White House and the increase in property investment generally, the real estate sector is ripe for international private equity fund managers to tap into.
According to The Lawyer’s Global 200: Real Estate 2017 Report and data provided by Private Equity Real Estate magazine, the world’s top 50 private equity real estate funds raised a combined US$271 billion between 2011 and 2016. Fundraising for global funds declined in 2016 after 5 years of year-on-year growth. PERE reports that this was due in part to a lack of funds closing – 25 per cent fewer funds closed in 2016 than in 2015.
Those who attended MIPIM in early March will have been aware of the positive view of the property sector. Investment in the London commercial property market continues to be popular for High Net Worth Individuals and Family offices, as well as for larger global private equity funds. Asian and Middle Eastern investors still look to London for their property investment and particularly in some of the more distinctive buildings which now pepper London’s skyline – from the City to Canary Wharf (the Cheese Grater, the Shard et al). All good signs for onshore and offshore lawyers servicing this market.
Pan European real estate funds are becoming increasingly popular, with London and Germany proving preferred markets for commercial property investment. According to The Lawyer’s Real Estate Report, portfolio deals involving particular asset classes (logistics, student accommodation, build to rent and private rented and hotels) are standing out further than single asset investments. In our experience of acting for investors in these sectors, offshore fund vehicles are just the ticket for investment in real estate portfolios – and for good reason.
Whether the investor is looking for a simple offshore company to hold the property assets in his own name or that of a nominee, or a more complex structure involving holding companies and an onshore, midshore or offshore funds vehicle, the legislative regimes in both the British Virgin Islands and in the Cayman Islands provide solid, predicable yet flexible frameworks for private equity investors.
In both jurisdictions, depending on the proposed exit strategy, the investment vehicle may be established as a regulated entity or as a more straightforward unregulated, closed ended funds vehicle or in conjunction with an onshore or midshore fund. Exit strategies will and do vary, depending on the appetite in the market. Private sales of whole property funds or some of their assets, redemptions of holdings or IPOs are all options, although the first two are probably more common of late. Other drivers such as tax and the domicile of the key investing parties will also be relevant.
If you act for investors or lenders who like to finance commercial property investments, and an offshore structure is under consideration, do let us know, we would be delighted to talk through the options.
Sales pitch over, I leave you with a couple of quotes about property investment which I quite like.
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” -- Franklin D. Roosevelt, US President
“Buy land, they’re not making it anymore.” -- Mark Twain, writer and humorist