ISSUE 37 Real Estate Gazette
FOCUS ON: OPERATIONAL REAL ESTATE
www.dlapiperrealworld.com
France Poland Hotels, franchising and third party Poland’s hotel sector: rapid change, investor operators: structural trends in opportunities and likely challenges European hospitality operations Portugal Germany Operational real estate: the future Flexible workplaces: new relationships mean of the sector in Portugal new legal and commercial considerations Romania Hong Kong Latest regulatory changes and their impacts on The effect of disruptions on operational real estate sales-based rental models in Hong Kong Sweden Italy Towards a better functioning rental market: Italy’s highest court allows for rebate of legislation for subletting residential apartments property tax to commercial tenants UK Namibia ‘Cool’ is the new hot… will the UK see a Namibian real estate: investment buy-to-rent model that caters for all? opportunity or liability? US Norway New technology and US real estate: Norwegian amendments to financial assistance seeking “the best way to do it” and their implications for real estate REAL ESTATE GAZETTE | ISSUE 37 | 2020
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A note from the Editor
Operational real estate is a rising star in the real estate investment market. One element that makes this asset class so interesting is the various sub sectors it covers, each calling for specialist experience and practical
Susheela Rivers know-how in both commercial and legal terms. Co-Chair, Global Real Estate Sector That diversity is reflected in this Germany looks at flexible workplaces issue. You’ll find information on and how changing commercial market opportunities, possible relationships bring new legal risks and changing laws relating considerations (page 9). to investments and development projects in Hotels and Hospitality, From Italy, we hear about a legal Retail, Healthcare, Residential precedent that provides some Property, Buy-to-Let, Senior certainty around controversial Living, Leisure and Tourism, and clauses in lease agreements Student Accommodation. (page 16). Meanwhile, legislation in Sweden for subletting residential Operational real estate appears apartments could mean a better to be the future of the industry functioning rental market (page 35), “One element that makes this in Portugal (page 28), while the while regulatory changes (and their USA describes how innovation and impacts on operational real estate) asset class so interesting is new tech are reshaping real estate are also covered in our article from the various sub sectors it across asset classes with a focus Romania (page 32). In Norway, on the user experience (page 40). amendments to the Companies Act covers, calling for specialist Hong Kong reports on retailing could have a big impact on financing experience and practical know- and the implications for landlords the acquisition of property-owning and tenants of the recent street companies (page 22). how in both commercial and protests (page 12). legal terms.” Finally, the UK asks if “cool is the The hotel market in Poland is seeing new hot” in terms of developing a rapid growth, with demand for buy-to-rent model that caters for all services and an increase in market parties (page 37), while falling house supply (page 25). Our contributor prices and economic challenges from France stays in that in Namibia are pushing real estate neighborhood, looking at structural in the direction of an improved trends in hospitality and their impact client experience and end user on hotels, franchising and third party satisfaction (page 19). operators (page 6). We hope you enjoy this issue.
3 REAL ESTATE GAZETTE | ISSUE 37 | 2020 Contents
Operational Real Estate
FRANCE Hotels, franchising and third party operators: structural trends in European hospitality operations...... 6
GERMANY Flexible workplaces: new relationships mean new legal and commercial considerations...... 9
HONG KONG The effect of disruptions on sales-based rental models in Hong Kong...... 12
ITALY Italy’s highest court allows for rebate of property tax to commercial tenants...... 16
NAMIBIA Namibian real estate: investment opportunity or liability?...... 19
NORWAY Norwegian amendments to financial assistance and their implications for real estate...... 22
POLAND Poland’s hotel sector: rapid change, investor opportunities and likely challenges...... 25
PORTUGAL Operational real estate: the future of the sector in Portugal...... 28
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ROMANIA Latest regulatory changes and their impacts on operational real estate...... 32
SWEDEN Towards a better functioning rental market: legislation for subletting residential apartments ...... 35
UK ‘Cool’ is the new hot… will the UK see a buy-to-rent model that caters for all?...... 37
US New technology and US real estate: seeking “the best way to do it”...... 40
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Hotels, franchising and third party operators: structural trends in European hospitality operations
Antoine Mercier, Paris
How third party hotel operators are unlocking the full potential of properties – and optimizing returns
In the last decade, most of hotels, through either leases for incorporating all possible details international hotel operators or management agreements with of the standards and technical have focused on developing their owners, and so obtain a franchise specifications imposed by an brands rather than the operational from international brands. They can international brand’s franchisors, management of hotels. As a result, then offer to owners the same range which they have become familiar they are now using the franchise of marketing tools for the hotels with after developing hotels in model, apart from their upscale that international brands provide. similar schemes. Finalizing a and luxury brands, particularly in Third party operators can also project to this level of detail at the flagship locations, where they are combine this offer with integrated authorization phase enables owners reluctant to lose the control that development, design and technical to better negotiate contractual direct management ensures. teams that possess the skills and arrangements for construction local market knowledge that most work. This approach also Consequently, hotel owners face a international brands do not. Their significantly reduces the possibility scarcity of international brands able assistance to owners then covers of a band compliance dispute with to actually perform the operational the full spectrum necessary for their the franchisor when a hotel opens. management of their hotels with (re)development projects. the degree of specificity and hands- Expanding the on management that optimizing The process begins with positioning franchise model: revenue and value creation require. a project in its environment and new opportunities for exploring new segments before third party operators This gap presents an opportunity moving to more precise definitions While the franchising business for third party operators. Their in the planning authorization phase. model is less developed in Europe business model involves The added value of a third party is (estimated at 40%) than the USA providing the full management their ability to take on responsibility (estimated at 70%), it’s increasingly
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seen by hotel chains as a way to As a result, the third party hotel administrative restrictions that may expand their brands and a way for operators familiar with certain exist in some locations – imposing owners to retain full control over brands have become the key to prior licensing to property agents operations.1 At the same time, developing relationships between and/or intermediaries – are likely brands are key for international those international brands and to be overruled as a result of a operators to quickly enter new hotel owners on a large scale. decision by the European Court of markets. Brands are more important Ultimately, third party operators Justice dated December 19, 2019. than ever because they provide only develop relationships with Based on the EU e-Commerce owners with the resources to keep a handful of brands for which Directive that instituted free up with new technology standards they fully understand their market circulation of electronic services, where they operate. positioning and standards and the ECJ ruled it would be illegal for which, combined in the portfolio any country within the EU to impose of hotels they manage, make them any license for the carrying out of “Because of the successful in the territories where such activity. they operate. relative flexibility Overcoming this new competition of the franchise Brands move towards from international brands, non-traditional which in some cases are marketing model, third party hospitality their hotels through a franchise, operators should In European cities, the rise of new will pose a challenge for third party accommodation offerings led by operators. However, their ability increasingly Airbnb and the enormous growth to adapt and develop attractive benefit from the of this market have triggered products more closely related to the appetite of competitors in the markets in which they operate, opportunities traditional hospitality segments. combined with the economic presented in the Indeed, international hotel chains necessity for international have identified that their combined franchisors to protect and promote hospitality sector.” client base and marketing the brands on which they base their platforms are a substantial asset networks, should enable them to and competitive advantage to continue to grow market share. enter this market. In addition,
1 Hotel Franchising in Europe 2019, Hospitalitynet 18/07/2019.
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Serviced This handful of brands, apartments: towards emerging strongly, will be “In the last decade, ‘home-living’ style challenging competition for most international Finally, the serviced apartment third party operators who are market has been the fastest- striving to develop new concepts hotel operators growing hospitality sector over and provide an outstanding have focused on the last few years. It went from customer experience. However, small-scale owner/operators to because of the relative flexibility developing their being dominated by high-profile the franchise model permits – brands rather than operators with new lifestyle brands. in terms of duration and the The latter offer a strong alternative diversity of brands available to the operational to Airbnb and similar providers with fit with the particular positioning management their innovative concepts featuring of each hotel – we believe third home-living style. The market is party operators should increasingly of hotels.” also consolidating, with more than benefit from the opportunities 50% of service residences now presented in the fast-moving being branded.2 hospitality sector.
2 JLL report, Serviced Apartments, 2018.
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Flexible workplaces: new relationships mean new legal and commercial considerations
Manuel Indlekofer, Munich
Flexible workplaces are disrupting the traditional commercial real estate market worldwide, including Germany. This new asset class has implications from a legal as well as commercial perspective.
Flexible workplace operators standard office leases. Within a Operational lease are to be found somewhere service agreement, the workplace agreements between the polar opposites of user is treated more as a “member” The flexible workplace business a traditional landlord/tenant office than an office tenant, with limited takes in a wider range of ancillary lease relationship. They are part rights to use the space. services offered by the operator to of a new three-way structure that the user, which usually goes hand- incorporates owner/landlord, Even at first glance, it’s clear these in-hand with intense integration of operator and workplace user. operational lease and service technology and communications. This structure isn’t governed agreements have little in common Service agreements grant the user by a single leasing relationship with a standard office lease short-term usage of space and between landlord and office relationship. Yet market awareness the ability to adapt to changing tenant but instead controlled by of these differences and therefore demands in size and scope of an operational leasing relationship the need for “legal adaptations” spaces used (i.e. increasing the between landlord and operator and remains low. In some cases, office space granted, or using a service agreement relationship operational lease agreements are additional conference space). between operator and user still treated as standard office leases, Operators therefore require the while service agreement are being ability to quickly adapt to the Moreover, the parties involved have dealt with in rudimentary terms changing demands of users to diverse interests compared to a that do not take into account the optimize their workplaces. standard office lease. Similar to peculiarities of flexible workplaces the hospitality sector, operators with a strong office use element. demand greater flexibility and more Consequently, an independent extensive rights to use the spaces contract practice is developing from the landlords compared to for this emerging asset class.
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This means operational lease to alterations of the rented space, agreements. Nonetheless, an agreements need to include a and the limitation of landlord’s rights increase in cost and profit-sharing certain degree of flexibility and with regards to the rented space. models in the flexible workplace broader rights to use the space sector can already be seen in other compared to standard office leases. Commercials jurisdictions and are expected In particular, this has a direct impact Since renovation measures and to become a feature of the on the commercials in addition to build out costs are generally higher German market. the drafting of the lease purpose, than in standard office leases, the workplace operator’s rights from the operator’s perspective Lease purpose there is a demand for higher A flexible workplace operator upfront capital from the landlord, doesn’t use the rented space solely similar to the hotel operations for office purposes. Rather, it’s the “Flexible workplaces business. However, cost sharing combination of granting office space e.g. furniture, fixtures and plus a variety of additional services lie somewhere equipment (FF&E) contingencies to users beyond the traditional between the polar and reserves along with income ancillary services in an office lease participation elements are still the (e.g. furniture, printing, cleaning). opposites of a exception in contract practice. Such services might change in traditional landlord/ scope and variety, which requires Capital expenditure by the landlord drafting an elaborate and flexible tenant office lease is in most cases compensated lease purpose definition. relationship: part by a higher rent and longer lease terms. Similarly, instead of Likewise, the landlord has an of a new three- profit participation mechanisms, interest that the operator will run way structure operational lease agreements in its business within the scope of the Germany generally provide for existing building permits and in line that incorporates a fixed rent with rent increases with applicable laws and regulations. owner/landlord, by way of indexation. Overall, The combination of office and the commercial elements in additional services, with increased operator and operational lease agreements still occupancy by users compared to workplace user.” lean towards the traditional office a “standard” office tenant, requires lease model rather than towards thorough due diligence if existing hotel leases or hotel management building permits allow flexible
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workplace operations, particularly of technical facilities are a key point This is generally dependent on regarding permitted use under within lease negotiations, since the the scope of the user’s rights to the permit, applicable workplace landlord has an interest to secure use the space (e.g. exclusive use ordinances, assembly regulations, third party usage of the space after of offices rather than hot desks), fire protection, restaurant codes the end of the lease term. This is the proportion of rented space and so on. why operational lease agreements within the flexible workplace center, deal with the technical particularities the duration of the fixed lease Since it is generally the landlord’s of the operator’s required term, and the degree of additional responsibility that the rented space alterations in greater detail. services consumed by the user. can be used for the defined lease However, a membership form with purpose in the lease, operational Limitation of general terms and conditions is lease agreements usually provide landlord’s rights currently market practice. for a detailed risk allocation In a standard office lease in regarding required permits and Germany, the landlord has a set While such membership adherence to laws and regulations. of standard access and alteration agreements are generally classified rights with regard to the rented as service agreements within the Alterations space. Access generally needs terms and conditions, this is not Integrating technology and to be granted after notice and 100% correct, since the relationship communications systems together the landlord is entitled to carry between operator and user entails with demands for flexible layouts out all necessary maintenance a lease and a service element. (e.g. open space with possible and modernization works in the Due to strict laws in Germany, future partitioning) require broad space and building. However, the reasonable drafting of such alteration rights by the operator compared to a standard office terms and conditions – taking into for the initial fit-out and future tenant, disruption to the workspace account the elements of a lease adaptions to meet changing user resulting from such works would and a service agreement – is vitally demands while continuing to have a distinct impact on the important so the agreement provide unrestricted access to the operator and users. The free cannot be terminated despite the building’s central facilities. enjoyment of the rented space conclusion of a fixed lease term without adverse impairments due to, for example, changes in the Compared to a standard office by the landlord is an important services offered (e.g. right to use lease, in which a landlord remains requirement for the flexible common spaces such as cafeteria). in control of the office tenant workplace business model. For In such cases, the risk would be to fit-out, operational lease example, renovation works on trigger an extraordinary termination agreements provide greater a building façade may be more right in favor of the user even autonomy for the operator. acceptable for a standard office though a fixed lease term has been The general layout and redesign tenant than for an operator, who agreed within the lease element of might lose potential users and the service agreement. income as a consequence. Finding a “The rise of flexible balance between the required rights In conclusion, it’s clear the rise of workplaces as an of the landlord and the interests of flexible workplaces as an asset class the operator for free enjoyment of and the contractual issues they asset class and the rented space is a key element create, particularly in the differences the contractual in negotiations for an operational between standard office leases lease agreement. and the newly-required operational issues they create lease and service agreements, require a new legal Service agreements require a new legal regime and The type of service agreement the development of focused regime and the between operator and the user standalone contracts. development of can range from detailed subleases to mere membership agreements focused standalone based on a standardized form, with contracts.” general terms and conditions for standard small and mid-sized users. REAL ESTATE GAZETTE | ISSUE 37 | 2020
The effect of disruptions on sales- based rental models in Hong Kong
Jonathan Gill and Edward Wong, Hong Kong and George Shirlaw, London
Hong Kong’s retail rental market has three distinctive features: rents are usually extremely high, tenancy agreements typically favor landlords, and calculations of rent often contain a sales-based component.
The retail industry is a prominent its ability to participate in a tenant’s example of operational real estate success without such a model being “Hong Kong’s retail in Hong Kong: retail sales were overly burdensome to a tenant. On more than 17% of Hong Kong’s this basis, it’s usual for the fixed sector has been 1 gross domestic product in 2018. component of a “combined” rental a casualty of the Unfortunately, the sector has been model to be the vast majority of the a casualty of the protests taking rent charged. protests taking place since June 2019. As you would place since June expect, short, medium and long- Short-term disruption term events can all affect sales- and how landlords 2019, affecting sales- based rental models. So what steps respond based rental models. can landlords take? Hong Kong retail tenants might suffer from a range of brief So what steps can Rental models interruptions to their businesses. landlords take?” Rental of retail space in Hong Kong These could include a lack of access is usually the higher of a fixed to the property for customers amount, or a combination of a because of suspended transport Leases in Hong Kong usually contain fixed amount and a percentage of services, construction work, rent abatement provisions if the sales. The advantage of sales-based power cuts or even bad weather. property is rendered unusable or or turnover rent for a landlord is Hong Kong is habitually subject inaccessible due to damage caused that a landlord can benefit from a to typhoons that cause millions of by phenomena including fire or tenant’s strong sales performance. dollars’ worth of damage. In 2018, flooding. That is generally as far However, if a tenant’s sales are the clean-up following Typhoon as landlords go: they will not accept poor, the landlord also suffers. Mangkhut took weeks and insurance further changes to rental provisions A landlord needs to balance its claims totaled USD370 million.2 due to short-term disruptions. need for certainty of income with
1 Census and Statistics Department, HKSAR, on http://hong-kong-economy-research.hktdc.com/business-news/article/Market-Environment/Economic-and- Trade-Information-on-Hong-Kong/etihk/en/1/1X000000/1X09OVUL.htm 2 https://insuranceasianews.com/typhoon-mangkhut-hong-kongs-claims-breakdown/
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Medium-term Luxury sales are mainly driven by How landlords are disruption international travelers, with visitors responding Civil unrest has been a recurring from China accounting for up to Landlords are taking different theme in Hong Kong’s recent history, 70% of purchases.7 Large numbers approaches to the protests that most notably in 2014 and the of shoppers visit from mainland are disrupting retail sales and so current protests, which started as China to take advantage of lower their sales-based rental receipts. demonstrations against a proposed prices: a free port, Hong Kong Some take an uncompromising extradition bill in June 2019. does not impose customs tariffs approach to rent reductions or on imported goods. As protests cancellations, leaving it to tenants The retail sector has been have turned more violent and to decide whether they will close severely affected. Retail sales anti-China sentiment increased, for business during protests plunged 23.6% in November 2019, they are shunning Hong Kong without the consolation of any rent the biggest monthly drop on record.3 in favor of destinations like reductions or cancellations during Consumer spending dropped to South Korea, Japan, Singapore and such periods. High-end fashion USD3.84 billion that same month Thailand. The number of visitors, companies are notable casualties of after a record 24.4% year-on-year mostly Chinese, nosedived more this strategy, with one famous luxury slump in October.4 The hardest-hit than 50% year-on-year in the first brand planning to shut a store in the goods are luxury items such as seven days of October, known as protest-affected shopping district jewelry, watches and valuable gifts, the “Golden Week” national holiday.8 of Causeway Bay supposedly after which saw a staggering 46% drop its landlord refused a request to in sales value in November from the lower the rent. previous year.5 High-end fashion brands reported sales declines of up to 45% in the quarter ending September 30, 2019.6
3 https://www.scmp.com/business/article/3044553/louis-vuitton-paid-estimated-hk5-million-monthly-rent-times-square-its
4 https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3044540/hong-kong-protests-continue-batter-retail-sector
5 Ibid.
6 https://www.scmp.com/lifestyle/fashion-beauty/article/3044433/top-luxury-brand-plans-close-protest-hit-hong-kong-store
7 Ibid.
8 https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3032562/mtr-corp-and-airport-authority-plan-offer-rent
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Other landlords are offering rental crisis and the sluggish economy, Landlords are also increasingly adjustments to help tenants. One as Hong Kong slipped into its first filling vacant space by letting to has proactively offered temporary recession for a decade at the end pop-up shops. The lease term can rent reductions of 10-20% to the of 2019.12 run from seven days to six months, majority of tenants in a shopping so providing landlords with greater center and promised to offer Landlords might also consider flexibility.16 Although the rent reductions in August 2020 based on changing how rents are calculated, paid is typically 20-30% of normal tenant requests.9 It has also allowed such as by insisting on a higher rates,17 this trend may continue its anchor tenant, which formerly amount of fixed rent to give if landlords struggle to secure occupied the ground and second themselves more certainty of longer-term tenants. floors, to consolidate its sales space income. Alternatively, they could exclusively on the second floor.10 accept a lower amount of fixed rent In conclusion, the protests in but a higher percentage of sales- Hong Kong demonstrate both Landlords of some of the largest based rent subject to that lower the advantages and potential shopping centers are giving tenants monetary threshold. Landlords vulnerabilities of variable sales- prior notice about mall closures and could also restructure the terms based rental models for retail offering rent reductions or waiving of leases to accept higher rent for landlords. Landlords need to rent for closed days. The landlord a shorter term or lower rent for a carefully monitor disruptions and of a center that sustained so much longer term. consider the range of potential damage in 2019 that it remains solutions available to protect closed is allowing tenants a rent-free They may also be forced to their long-term interests. period while repairs continue.11 reduce their rents in the long term. For example, a well-known In addition to loyalty, another fashion brand confirmed it will not possible reason why landlords renew its lease at its flagship store “The protests 13 are reducing rent is that finding when it expires in June 2020. in Hong Kong new tenants is expensive, time- The landlord announced it would consuming and can outweigh the slash the monthly rent by 44% for demonstrate both 14 medium-term costs of reduced rent. its next tenant. the advantages Landlords might also struggle to find new tenants in the current climate. Some landlords are already and potential changing their tenant mix to vulnerabilities of Long-term disruption replace luxury boutiques, which and how landlords rely so much on visitors from variable sales- might respond China and other countries, with based rental The current protests have been in more accessible lifestyle stores progress for less than a year and it and restaurants catering to local models for retail 15 remains unclear how landlords will customers. Landlords might landlords.” behave as disruptions to retail sales persist with this approach and, move from medium to long-term. given the choice, choose tenants Real estate services firm JLL believes less likely to attract protesters more landlords will consider and so minimize disruption and adjusting rents amid the current damage to their properties.
9 https://hk.finance.appledaily.com/finance/20200108/C43U2Z36HHWWO7FRDWTIJ2IR3Y/
10 https://www.scmp.com/lifestyle/fashion-beauty/article/3038400/chanel-rimowa-delay-new-stores-prada-moving-out-sales
11 https://hk.finance.appledaily.com/finance/20200108/C43U2Z36HHWWO7FRDWTIJ2IR3Y/
12 https://www.scmp.com/lifestyle/fashion-beauty/article/3038400/chanel-rimowa-delay-new-stores-prada-moving-out-sales
13 https://www.scmp.com/business/article/3023267/causeway-bay-retail-landlord-offers-cut-rent-44-cent-prada-closes-flagship
14 Ibid.
15 https://www.scmp.com/lifestyle/fashion-beauty/article/3038400/chanel-rimowa-delay-new-stores-prada-moving-out-sales
16 https://www.scmp.com/property/hong-kong-china/article/3045829/luxury-brands-use-pop-stores-skirt-hong-kongs-sky-high
17 Ibid.
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Italy’s highest court allows for rebate of property tax to commercial tenants
Carlotta Benigni, Milan and Francesco Calabria, Rome
An important jurisprudential precedent was set in Italy last year that provides a degree of certainty around controversial clauses in lease agreements whose compatibility with the national legal system was called into question.
An Italian Supreme Court Under Italian tax law, the IMU The Supreme decision in Unified Sections dated property tax is due from the Court decision March 8, 2019 (no. 6882) stated as landlord of real estate, regardless of The Unified Sections summarized lawful a clause in commercial lease the fact that the property is leased the question of law: “Whether the agreements that allows a landlord to a third party. IMU is not payable constitutionally relevant obligation to rebate the property tax (IMU) by a tenant, who does not have the to contribute to public expenditure due on a property to the tenant. ownership of the property. on the basis of its own contribution This marked an important step capacity has an exclusively towards the possibility of entering Consequently, the tenant had ‘objective meaning’ – in the sense into lease contracts that are asked the judges to declare the of obligation to fulfil on the basis increasingly in line with the so-called nullity of such a clause, referencing of what the contribution capacity “triple net” standard, widely used in the contribution principle set out allows – or even subjective – in the international commercial practice. in Italy’s Constitution, with the sense that the fulfilment must be general prohibition of transfer accomplished not only for the due The case of tax charges to other persons, amount, but also by the person An international operator of retail and provisions related to lease who has the obligation under the premises, tenant of a supermarket agreements (residential and law – thus excluding the possibility site (assumed in the context of a non-residential) that expressly list to transfer the obligation to a sale and leaseback transaction), charges that can be recharged to different subject.” acted to obtain the declaration the tenants. This was in accordance of nullity of a clause of the lease with the principle that, further to the In other words, the issue is whether contract it had entered into with the rent, the landlord may charge to the the negotiating autonomy can affect landlord. This clause provided that tenant only the pure expenses paid the identification of the person liable during the entire duration of the for “common services” provided to for tax, neutralizing the effects of the lease agreement, the tenant would the leased premises. principle of contribution capacity. take charge of any tax and duty The answer given is affirmative and related to the property. gained from two earlier decisions
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by the Unified Sections dating back The second decision instead landlord remains the only entity to 1985, which reached almost affirmed the nullity of the translation liable vis-à-vis the tax authorities, opposite conclusions. agreement exclusively to the case even if the parties privately agree in which the taxes were not actually to translate the tax burden from The first decision considered as paid to the tax authorities by the the landlord to the tenant. prohibited and therefore null liable subject, so to exclude the the agreement with which a nullity of these kind of agreements Regarding the most recent subject, even without affecting in the event that they have the decision, the Unified Sections – the obligations vis-à-vis the tax function of integrating the “price” even if not 100% clear – seems to authorities, had actually transferred of the negotiation service. recognize the amount due under the burden of its own taxation the clause contained in the lease to another, at least in terms of Based on the latter decision, which agreement mentioned above as direct taxes. was reiterated several times in the an additional item of the rental fees, subsequent case law, the Supreme and contributes to determining the Court came to consolidate the overall economic burden incurred by lightest jurisprudential orientation, the tenant. The transfer agreement “It’s important to (re)affirming the principle of law of the IMU to tenant, being related underline that, according to which “any agreement to the determination of the amount on the translation of taxes is of rent, is not subject to the in Italy, the main contrary to public order only when binding legislation and furthermore, laws related to it implies that the tax is not actually in the case at hand, the will of the paid to the Tax Authorities by the parties to enter into such specific lease agreements liable entity”. agreement clearly emerged provide significant from the reconstruction of the The private autonomy, therefore, negotiations between the parties. protections for cannot provide for exemptions from In particular, the lease agreement tenants.” liability with effect towards the tax under judgement, as mentioned authorities. In other words, the above, was a “B2B” agreement,
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entered into among companies of In addition, the Unified Sections Finally, it is important to highlight primary standing (i.e. a professional do not take a clear position on how that, even if the Supreme Court real estate investor, as buyer- recharging of the IMU from lessor ruling has been issued with landlord, and an international to tenant should be treated from a reference to a commercial lease retail chain, as seller-tenant) in the VAT perspective. This would depend agreement, an application of the context of a large-scale sale and on how the IMU rebate should be translation rule to residential leaseback transaction, involving a considered from a legal perspective. lease agreements (at least, number of buildings used as If the transfer of the IMU burden to those residential leases with supermarkets, all leased on the was defined as a pure IMU rebate, freely negotiable rental fees, basis of a common lease template. the transfer would be considered which are the majority) cannot be as a sort of “mandate without excluded. The important aspect Conclusions and representation” of the tenant to to consider in the residential field, implications the landlord to pay IMU, so that the in case the landlord is an investor From a legal and tax perspective, landlord would pay IMU in its name (or in any case an entity different the following points are but on behalf of the tenant. This, from a natural person) is the worth considering. however, would be in contrast with possibility for the same landlord to the IMU law, which provides that be in the position to demonstrate – It is important to underline that, the entity liable to tax is indeed the in case of disputes – that the in Italy, the main laws related owner of the real estate property meaning and economic impact to lease agreements – i.e. and not the tenants. of the translation clause was fairly July, 27 1978 no. 392, as amended, negotiated among the parties for commercial lease agreements Consequently, it would be more and understood by the tenant. and December, 9 1998 no. 431, appropriate to treat IMU as a for residential lease agreements – component of the rental fee, Such a conclusion, which needs provide significant protections for in particular a sort of “variable to be tested in the market, tenants. Certain amendments and rental fee”, and as such subject could represent a powerful incentive liberalizations were introduced in to the ordinary VAT treatment to the growing serviced apartments/ 2014, with reference to commercial (22% VAT rate applied at the enhanced living industry, where the lease agreements having an annual option of the landlord) and to the tax costs of housing leases – rent higher than EUR250,000 proportional registration tax due on mainly given by the impact of to encourage free negotiation lease agreement (1% or 2% of the VAT, not recoverable by the real between the parties. yearly rent, as the case may be). estate operator – could be partially off-set by transfer of IMU to the It’s also worth noting that the In any case, this seems to be final tenants. Supreme Court decision is the solution adopted in the case related to a commercial lease under scrutiny by the Unified agreement entered into before the Sections, and it will be left to the “An important amendments to the Law 392/1978. competent tax authorities to jurisprudential Therefore, it could be argued that verify the correctness of such a the provision aimed at allowing the tax treatment. An official position precedent last year translation of the IMU burden on of the tax authorities has not been provides a degree the tenant is generally practicable, published, and it is easy to predict also in those lease agreements the issue could become a hot topic of certainty around which have been signed before in the future. It is certain that a controversial clauses the 2014 liberalization, provided ruling request before entering that the integration of the rental into an agreement with such in lease agreements.” fee has been originally agreed clauses would be advisable. between the parties.
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Namibian real estate: investment opportunity or liability?
Arnhild Schnugh, Windhoek
Once a cornerstone of the economy, the Namibian real estate market had been growing rapidly. It reached its peak in 2014 when Namibia recorded the second highest house price growth in the world, second only to Dubai.1
During this period, the country In 2017, the Bank of Namibia index3, mainly influenced by the received substantial foreign attempted to restrain the excessive purchase of low-income housing; investments in real estate, further uptake of mortgage credit, the demand for real estate is still contributing to the health of the which was boosting the already high in Namibia. economy. Unfortunately, decline unrealistically high housing prices. follows every peak. Factors including It implemented a change in the Falling house prices have reached a the plummeting economies of Loan-to-Value regulations so that critical level. In an effort to motivate neighboring countries Angola and purchasers had to pay extremely investment in real estate, the Bank South Africa, political uncertainties, high deposits on the purchase of of Namibia reviewed the earlier and corruption scandals at home all investment properties. This change, changes in the Loan-to-Value contributed to a decline in the real among others, led to stagnation regulations and smaller deposits estate market. and an eventual decrease in the are now required to purchase purchase of investment properties. investment properties. The Bank of At the same time, a nine-year This decrease had a negative impact Namibia also introduced a 25 basis drought affected agricultural and on the success of new developments point cut in the Repo rate, aimed at horticultural sectors, which are in the housing market and, as a preventing excessive repossessions among the country’s main sources result, the construction industry of real estate. Usually, the impacts of revenue. Local farmers were left collapsed, leading to a standstill in of such changes can be seen in the with little choice other than selling property development. market within 12 months. However, their livestock and eventually their experts remain skeptical that these farms to avoid foreclosure by the Falling house prices changes will have an effect on the banks. Some 300 farms were on the In June 2019, the First National Bank tumbling real estate market. market with few or no purchasers; of Namibia recorded an all-time foreign nationals are restricted from low annual house price growth Changing market buying agricultural land in Namibia of negative 3.7% year-on-year.2 dynamics without the prior consent of the Despite the fall in house price One consequence of falling house Minister of Land Reform. growth, a year-on-year increase of prices is an increase in the property 27.4% was recorded for the volume leasing market. As in any financial
1 FNB Housing Index https://www.fnbnamibia.com.na/downloads/namibia/Housing-Index-Jun2014.pdf
2 FNB Housing Price Index https://www.fnbnamibia.com.na/housing-index/index.html
3 Ibid.
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depression, people sell their With this option to rent out that tenant loyalty requires investment and holiday properties immovable properties, all be it for leveraging a building’s products first and, after the optimal window short-term holiday lets, investment and services to create a memorable to sell has closed, the market is in real estate can still be lucrative. customer experience. This has flooded with such properties. However, as a result of the shift from become known as operational Purchasers now have a wide range a real estate market dominated by real estate.”4 of properties to choose from and artificially high house prices to one most opt to temporarily rent a where availability is almost equal to property instead of purchasing, demand for real estate, a change “Tenant loyalty with the hope of a further in mindset is required by investors. decrease in house prices. To be successful, they have to be requires leveraging more actively involved in managing a building’s products With tourism still one of Namibia’s the property: operational real estate. most successful sectors, plus the and services to availability of services like Airbnb, ‘Leveraging a create a memorable another window of opportunity building’s products has opened to property owners. and services’ customer Rather than entering into long-term Alan Tantleff of FTI Consulting Global experience.” leases with tenants, owners offer describes operational real estate in their properties for short-term this way: “Today, successful building accommodation to holidaymakers. owners and landlords understand
4 GlobeSt.com – A new definition for Operational Real Estate by Tanya Sterling.
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The key to success has evolved 2. End user satisfaction is critical to With real estate a highly sought- from selling a product to selling success, and a good relationship after resource in Namibia, the a service. And in a world where between landlord and tenant is demand for property will always social media trumps marketing, therefore paramount. exceed its availability. Despite client loyalty is not guaranteed. the economic crisis the country Previously, decisions were based 3. Stellar service is always the is currently experiencing, an on loyalty towards a person or key to success: this can only investment in Namibian real estate company, perhaps stemming happen when property owners will always be an asset and never from a longstanding relationship and managers align themselves a liability, provided that property or previous brand engagement, to their tenants’ goals, needs owners and managers keep evolving rather than the quality of a service and objectives and as such their approaches and stay ahead being delivered. The trend now is enhance the value of the of the game in keeping up with the personal satisfaction triumphing clients’ investment.5 latest industry trends. over loyalty. Through social media, customers can share their opinions The May 2019 FNB Rental Index Ellis Shilengudwa Inc is a member and experiences instantly, for better Report6 showed a contraction in of DLA Piper Africa, a Swiss verein or worse, and their views carry more the deposits charged on rental whose members are comprised weight than advertisements from properties; this is a clear indication of independent law firms in Africa a service provider. So providers that landlords are willing to working with DLA Piper. cannot just “deliver a service” reduce the deposit charged on but have to ensure customer- rental properties to attract and centric experiences. secure tenants. “Despite the economic crisis, an investment Where property owners were, in the While this is more evidence past, certain to secure tenants for of a gradual shift in Namibia in Namibian real their properties without additional towards operational real estate, estate will always be effort, they must now leverage a a change in mindset is still building and its services to create required so that property owners an asset and never customer satisfaction. Moreover, and managers fully understand a liability.” Alan Tantleff believes successful that the simple availability of operational real estate must a property is not sufficient to demonstrate three key qualities: ensure tenant loyalty. High levels of client satisfaction through 1. Operational real estate is extraordinary service delivery experiential: it’s more focused and memorable experiences, for on the experience than long-term and short-term tenants the transaction. alike, are far more valuable than conventional marketing and can lead to successful investments in real estate.
5 GlobeSt.com – A new definition for Operational Real Estate by Tanya Sterling.
6 https://www.fnbnamibia.com.na/downloads/namibia/rentalIndex/2019/May.pdf
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Norwegian amendments to financial assistance and their implications for real estate
Anders Bergene, Oslo
On January 1, 2020, amendments to the Norwegian Companies Act came into force that may have a significant impact on financing the acquisition of property-owning companies, including operational real estate.
Prior to the amendments – estate as security for the purchaser’s the real estate company definition aksjeloven and allmennaksjeloven acquisition of shares in the company alongside certain limitations, i.e. that § 8-10 – legislation set forth several or its parent. This mortgage the real estate company could not conditions for a company’s ability to right has been widely used in pledge any of its other assets for the grant a loan or otherwise provide the transaction market since the acquisition financing. financial assistance in connection exception regulations were adopted with acquiring shares in the in 2007. “Amendments to company or its parent. For example, the financial assistance needed to The definition “real estate the Norwegian be within the company’s dividend companies” required that the Companies Act may capacity (distributable equity) and company’s single activity consisted repayment of the assistance had to of ownership and operation of have a significant be satisfactorily secured. As these real estate. This meant that if the impact on financing conditions are often difficult to company owned a building under comply with in practice, to a large development or construction, it the acquisition extent these provisions served to normally fell outside the definition. of property-owning prohibit such assistance. Such companies were consequently subject to the general financial companies, including A general exception applied for assistance limitations in the same operational real estate companies, who were way as other businesses. Other entitled to mortgage their real conditions also existed for satisfying real estate.”
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Tightening the rules? The main rule continues to be that Following the amendments, there is The recent amendments to the the financial assistance cannot no longer any definite requirement Companies Act have been adopted exceed the company’s distributable that the company shall receive to ensure a company’s increased equity. However, this condition does satisfactory security for providing ability to provide financial assistance, not apply if the acquiring entity is the financial assistance. However, typically by granting security over a party to the same group as the the provisions stipulate that the its assets for the purchaser’s target company, or will be so as a assistance shall be provided on acquisition financing. For real estate, consequence of the acquisition, ordinary commercial terms and however, the amendments imply a and is resident in a EU/EEA country. principles. This implies that there tightening of the financial assistance Such a group exception is not should be a reasonable balance in ability as the exception regulations applicable for public limited the contractual relationship with were simultaneously repealed at the companies and is only for private respect to the parties’ performance turn of the year. The general if more limited companies. and, consequently, that satisfactory lenient new provisions will also apply security may still be necessary. In for real estate companies. any event, it’s assumed that the company must receive an arm’s length guarantee provision for the financial assistance.
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In addition, the company’s dividend well-established market practice Prior to closing, the seller/company capacity may now be calculated on to create a mortgage over the registers an empty mortgage the basis of an interim balance sheet subject property to the benefit (accommodation bond). rather than the annual accounts of the purchaser’s bank prior to only, as was the case prior to the completing the acquisition. Such • At closing, the purchaser elects amendments. Financial assistance pre-registration of a mortgage right a new board that issues the may only be provided following the enables the purchaser to have loan statement and enters into registration and announcement proceeds available prior to, and the necessary agreements of the interim balance sheet in the thus pay the full share purchase with the bank to release the Register of Business Enterprises. price at, the closing date. Before loan proceeds. This part of the amendments the amendments to the financial has not yet entered into force. assistance provisions this was Pending clarification of the Financial assistance must still be permitted pursuant to the exception amendments and in advance of resolved by the general assembly, regulations and did not require any completing real estate transactions, with a majority for changes to the statement or other activity by the it’s recommended that purchasers, company’s articles of association. company or seller. sellers and closing agents clarify The receiver of the financial with the banks involved how assistance needs to be subject to a Confusion in to deal with the new financial credit rating as previously. the market assistance requirements. The amendments have led to a Moreover, requirements for a board degree of confusion. Some people In any case, these amendments of directors’ statement to be given take the view that the preparatory are likely to make the process of in connection with the assistance works of the amendment assumed obtaining external financing of real have been expanded. For example, that the directors’ statement estate acquisitions more extensive the statement must contain an described above must be given by and time consuming. Due to the assessment of the company’s the board of the target company lapse of exemption regulations, interest in implementing the prior to completing the transaction, banks may also be inclined to relevant transaction or disposition, i.e. effectively the seller’s require security not only in the and of the consequences for representatives. If this is the case, property but also in the company’s the company’s equity and there is good reason to believe that other assets for the acquisition liquidity. It should also include a most sellers and their directors will financing. The real estate sector confirmation from the board that be reluctant to contribute in this should be conscious of these issues. it is in the company’s interest to way for the purchaser’s financing provide the assistance and that as it will expose them to liability. An requirements with respect to interpretative opinion to confirm “The process of sufficient equity and liquidity are the correct understanding of the satisfied. The statement has to be amendment has been requested obtaining external signed by all directors and attached from the Ministry of Trade and financing of real to the notice of general meeting, Industry and is expected soon. and be notified to the Register estate acquisitions of Business Enterprises before Assuming the Ministry will confirm is likely to become provision of the financial assistance. that view, Norway’s national real estate associations have more extensive and Mortgaging property recommended a procedure time consuming.” In real estate transactions, by which: i.e. acquisitions and disposals of real estate companies, it’s a
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Poland’s hotel sector: rapid change, investor opportunities and likely challenges
Karolina Kordulska, Warsaw
Poland’s recognition as an attractive tourist destination and a country with excellent development prospects and advanced infrastructure is driving a steady increase in visitor numbers.
The Polish hotel market is going well-educated workforce, have made hotels with well-established brands through a period of rapid growth, Poland one of the most attractive located in Poland’s largest cities. with rising demand for hotel locations for foreign investment The majority of these transactions services followed by an increase in in Europe. have involved three, four and market supply. Rising operational five-star hotels.2 indicators and occupancy rates are As a result, significant changes encouraging investors to open new have taken place in the hotel sector, hotels, a move seen as a good way including the development of “The Polish hotel to diversify portfolio risk. modern facilities and the market entrance of new brands and chains. market is going Rapid changes in There are now a significant number through a period the market of business and tourist hotels in The market has been stimulated Poland’s main cities, especially of rapid growth, thanks to growing interest from Warsaw and Krakow, and in with rising foreign tourists, especially German, holiday resorts and seaside towns. and the improving financial According to official data, 13 of the demand for hotel situation of many Polish families 16 Polish provinces have seen an services followed resulting from government increase in the number of hotel policies, in particular the Family facilities in recent years.1 by an increase in 500+ Program. At the same time, market supply.” favorable economic conditions International investors are manifested in the growth in GDP, showing an increasing interest along with a relatively cheap and in transactions involving large
1 Emmerson Evaluation report using data from Polish Central Statistical Office, prepared by ŚWIAT HOTELI magazine.
2 Ibid.
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Trends in the groups with varying needs and there were at least 60 condo hotel hotel market expectations. However, the most projects in Poland, providing more Both domestic and foreign hotel significant development today is the than 11,000 condo units.6 chains have facilities throughout growing interest of international the country. Commercial advisors chains in opening hotels in Offering guests the same estimate that there are at least 366 holiday destinations. functionality as a regular hotel, categorized chain hotels in Poland.3 condo hotels are usually classified International chains tend to operate In recent years, with several new as premium class facilities. They in large cities through hotels in luxury brands entering the market, operate on the basis of dispersion business districts. Such investments it’s been estimated that the cost of apartments’ ownership between can bring the highest levels of of investing in a top-class five-star individual investors, who receive a return, even for four and five-star hotel ranges from EUR80,000 certain rate of return from renting hotels, which are more challenging to EUR175,000 per room.5 out the property. This is usually a to manage than three-star facilities. Financing for hotel investments is long-term investment, for a period usually provided through equity of between 5 and 15 years. Despite the increased presence or third-party capital. This may of international hotel chains, be generated, for example, Poland’s condo hotel market is the overall ownership structure by increasing share capital through relatively young. While it will not on the market is still relatively capital contributions from existing be replacing the traditional hotel diverse. The vast majority of hotels shareholders or by attracting new segment any time soon, it’s currently are privately owned and run investors. A special form of raising a popular form of investment by individual entrepreneurs, with capital is co-operation with venture among individual investors who most located in holiday resorts capital funds. Bank loans are the focus primarily on purchasing where the most well-known Polish most common source of third- residential apartments for rent. chains also operate. party financing for hotel projects. It’s also seen as an opportunity In particular, banks are willing by well-established hotel brands. Three-star hotels currently to provide financing for projects While the condo market is constitute the largest segment involving well-established hotel currently dominated by large of the market, significantly operators, who in turn are usually Polish companies such as Arche, outnumbering four and five-star obliged to execute a triparty duty international chains like Mercure, facilities. However, recent market of care agreement to secure the Staybridge Suites, Royal Tulip and trends indicate this may be interests of the bank and eliminate Tulip Residences are showing changing, as the highest occupancy the risk of early termination increasing interest. rates are recorded consistently in of the project. five-star hotels, which are the most Returns on investment in the popular among foreign tourists.4 Alternative hotel condo hotel sector currently range This indicates a steady demand for investments from 4.5% to 9% net per year.7 high quality facilities that offer a In recent times, an alternative However, this is before the payment wide range of services, and which investment product has started of additional maintenance costs, are relatively inexpensive in Poland competing with traditional and also assumes the occupancy compared to other countries. hotels: so-called condo hotels. rate of the property remains These represent an investment constant throughout the year, Another trend led by foreign chains opportunity not only for which is difficult to achieve. is combining two hotel brands in a international chains but also private single building, which allows them individuals who want to earn rental to offer services to different target income. It’s estimated that, in 2019,
3 Market Report, April 2019 prepared by Horwath HTL.
4 Emmerson Evaluation report using data from Polish Central Statistical Office, prepared by ŚWIAT HOTELI magazine.
5 Profitroom report on Polish hotel market.
6 Report: Aparthotels/condo hotels in the biggest Polish cities, prepared by Inwestycje w Kurortach.pl
7 Emmerson Evaluation report, available via condo investor websites, information provided by Polish authority UOKiK.
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At the end of 2019, the Polish some 30 new hotels will be built. authorities initiated a high-profile However, investors and international “The growth in public campaign to raise awareness franchisers will also start operations amongst consumers about condo in smaller cities, e.g. Hampton by supply for the hotel investments, highlighting Hilton in Kalisz and Oświęcim. Polish hotel the risks involved and warning against this type of investment. It is International chains will continue market looks set difficult to say if the campaign will to invest in Poland, with new to continue for the slow development of this segment. brands appearing in the This may not be the only issue coming years, such as Marriott next few years – condo hotel investors face this year: International under brands such the flipside is that legal questions have also been as Residence Inn, Four Points by raised concerning the separation Sheraton or Autograph Collection, rapid growth status of condo hotel units, and Louvre Hotel Group under may slow due which constitutes the main feature Royal Tulip brand. of such projects. to challenges The flipside is that rapid growth relating to the Market forecasts in the hotel market may slow The growth in supply for the Polish due to challenges relating to the implementation hotel market looks set to continue implementation of hotel projects. of hotel projects.” for the next few years.8 New hotel The main issues facing investors are investments are being announced, financing, increasing construction including large chain investments and labor costs, and recruiting such as Accor, which is opening qualified hotel staff, which may 17 new hotels. The biggest rise cause delays in investment in the number of new hotels will processes. Last but not least, continue to be in major cities such higher land prices may also become as Warsaw and Tri-city, where an obstacle to future developments.
8 Hotel Market report, April 2019 – Horwath HTL, Colliers International.
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Operational real estate: The future of the sector in Portugal
Paulo Anjo, Lisbon
Operational real estate is shaping up to be the future of the sector in Portugal, as in other European countries, opening doors into new investment and development opportunities.
Broadly speaking, operational Portuguese 2019, the media has reported 166 real estate means targeting real estate: no longer new tourist-focused projects in the activity on end user services and a static market pipeline in the first half of 2019: experiences. This means focusing Real estate standard asset an increase of 23% compared to on sub-sectors that include classes in Portugal are changing, the same period in 2018. This is one Hotels, Student Accommodation, with co-living, co-working and result of Portugal being named the Senior Living and Healthcare, hotels with co-working and co-living, world’s leading destination in 2019 Leisure (parks, cinema, gyms, along with other mixed uses, for the third consecutive year (World etc.), Pubs and Restaurants, being added to the mix. Portuguese Travel Awards).2 and emerging segments including hotels are more actively exploring storage facilities, data centers, other activities and venues, such co-living and co-working. as meetings, conferences and “Despite lagging events. Meanwhile, millennials are At first glance, it can be easy to helping us to understand a new behind countries see operational real estate as view of the sector, moving from a such as the UK and simply meaning hospitality and model of real estate ownership to leisure, and hotels in particular. one of real estate use, as and when Germany, Portugal is However, it extends way beyond it’s needed. now moving forward hotels and now reaches right across Europe. Despite lagging behind Statistics Portugal revealed a in this key area countries such as the UK and 6.1% increase in the hotel sector, of real estate.” Germany, Portugal is now moving comparing July 2018 to July 2017.1 forward in this key area. With data not yet available for
1 www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_publicacoes&PUBLICACOESpub_boui=358629548&PUBLICACOESmodo=2
2 www.worldtravelawards.com/award-worlds-leading-destination-2019
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Opening doors accommodation sector is not as When you take into account that The success of Portugal’s hospitality highly developed as other countries, people retire in 2020 aged 66 and leisure sector is opening the Nova School of Business & years and 5 months and the fact the door to new and improved Economics campus, west of Lisbon, that life expectancy may go up by structures. Hotel chains are is a success story that delivered 22.1 years (counting from aged 65)4 providing rooms with guest services more than 1,000 student beds.3 then existing developments are similar to serviced apartments, However, according to financial merely the start of what may be an while short-term rental providers services company JLL, there is still a extremely interesting market. are expanding their offerings to shortfall of 14,000 to 20,000 beds move closer to hotel-style services. in the country, which represents In Leisure, new investments are These new offers provide additional a tremendous opportunity for being targeted at gyms across income sources, particularly in investors in this sub-sector. Portugal. Recent data suggests that light of Europe’s low interest rates, more than 90% of the population including Portugal. In Senior Living and Healthcare, does not attend gyms.5 The main we can point to the construction players in this sub-sector, including At the same time, the arrival of new private hospitals and Fitness-Hut (low cost provider), of experienced real estate clinics, such as by the CUF Group Holmes Place, Go-Fit and Solinca investment funds and investment of hospitals. Increasing life recognise this opportunity and companies from across the world expectancy and growing numbers are expanding their investments is a catalyst for further evolution of elder people who want or need in the main Portuguese cities with and setting new targets for the to live with certain amenities and notable success.6 country’s real estate market. For healthcare services mean senior example, although the student living is expanding as a business.
3 issuu.com/cobertura/docs/student_housing_jll_portugal_april_
4 www.savills.pt/research_articles/254855/290527-0
5 expresso.pt/economia/2018-02-11-Negocio--dos-ginasios-esta-a-encher
6 Ibid.
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For Pubs and Restaurants, housing to rent or purchase in All this activity suggests we are the all-year tourist interest in the residential market. Given that witnessing a shift in Portuguese Portugal over the last few years Portuguese average salaries are real estate towards meeting has led to a considerable number quite low, co-living is an increasingly operational end user requirements, of restaurant openings every year, popular solution, particularly in bringing both innovation and with the country acknowledged for or close to city centers. Lisbon new investment opportunities. its fabulous cuisine.7 now ranks 27th in European cities Increasing diversification will, for co-living beds.8 There is huge we believe, mean growth and With emerging segments, potential for growth. future success for Portuguese car parking is currently an attractive and foreign investors. investment, especially in the Co-working is also emerging as a main cities due to the scarcity real estate opportunity in Portugal. “We are witnessing a of parking spaces. The clearest With numerous existing co-working example is Empark, the leading spaces in Lisbon, new projects in shift in Portuguese car park concessionaire in the the pipeline include Smart Studios real estate Iberian Peninsula. The company’s and WeWork facilities under experience in this area and its construction. These developments towards meeting high revenues led to its recent will help transform Lisbon into operational end acquisition by Macquarie European a new European exemplar Infrastructure Fund 5. of affordable co-working spaces. user requirements, Such affordability can be central bringing both Co-living is also “the next big thing” to some business’ sustainability: in Portugal. The most pressing issue start-ups, for example, which are innovation and in cities today is to locate affordable increasing every year in Portugal. new investment opportunities.”
7 www.timeout.pt/lisboa/pt/restaurantes/os-melhores-novos-restaurantes-em-lisboa
8 nit.pt/out-of-town/back-in-town/coliving-moda-partilha-casa-nao-vai-parar-crescer-portugal
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Latest regulatory changes and their impacts on operational real estate
Elena Zoita and Ioana Anton, Bucharest
Keeping up with constant change in a rapidly transforming market is difficult at the best of times. In Romania, new amendments to real estate regulatory provisions look set to have a significant impact on business strategies, including the operational real estate sector.
Romania recently saw amendments connections to utility networks to an expert examination on to Law no. 10/1995 covering quality in the urban infrastructure, with the basis of detailed technical in construction as well as Law no. payment of connection fees documentation approved in line 50/1991 on the authorization of corresponding to the branching. with appropriate legal provisions. construction works performance, • An inspection upon completion • Handover to the owner only takes and the Methodological Norms for of works (Recepție la terminarea place following admission of the Applying Law no. 50/1991. lucrărilor) and an inspection on inspection on completion of works completion of connections to and after putting into service the Quality in construction public services and technical authorized and final connections The changes to Law no. 10/1995 infrastructure, corresponding to the public utilities networks focused on the obligations and to the groups of individual of the urban infrastructure, both liabilities of investors, and of owners and collective housing units, in the case of new investments of construction sites, mainly on public utility constructions and and interventions on existing obligations regarding branching access routes. constructions that were not and connections for utility networks. • Performing a final inspection used during execution of the The new obligations for investors on expiration of the guarantee construction works. covered the following: period (Recepția finală la expirarea perioadei de garanție). With the obligations and liabilities • Obtaining agreement/ • Alteration of building installations/ for owners, amendments to Law no. authorization from the networks relating to the 10/1995 included: road administrator to make construction work, subject
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• Commissioning of the • Connection and branching documentation to authorize construction shall take place only works to the technical urban construction works, it’s necessary to after admission of the inspection infrastructure already existing in obtain the approvals/endorsements at completion of works and the area; for this to be applicable, of the suppliers and administrators after putting into service the works should be performed of urban utilities for insurance authorized and final connections in the public domain, subject and for connection/branching to to the public utilities networks to the road administrator’s of the urban infrastructure and approval/authorization. obtaining the authorizations • Installation of photovoltaic “New amendments provided by law. This applies both systems for electricity production to real estate in the case of new investments by prosumers and/or installation and interventions on existing of solar panels for heating or hot regulatory constructions that were not water for domestic consumption, provisions in used during execution of the with prior notification to the local construction works. public administration authorities Romania look set to • Utilization of the construction can and compliance with the law in have a significant only be permitted after admission force. The PV systems and/or of the inspection at completion of solar panels will be supported by impact on business the works and after handover of a structure capable of ensuring strategies, including the construction. At the handover, stability of the entire assembly. all connections to the urban the operational real utilities should be put into service With the amended version of Law estate sector.” and accepted by the investor 50/1991, gaining the necessary owner/initial owner, in accordance endorsements and approvals can be with the notices of the utilities carried out directly by the applicant the urban infrastructure. These providers that are annexed to the or their proxies, prior to submission approvals/endorsements are subject building permit. of technical documentation for the to certain conditions and restrictions building permit, or through the regarding operational safety, One noteworthy amendment Committee for Single Approval (CSA) imposed by the characteristics and states that if a construction is built at the request of the applicant. location of the energy and technical without a building permit and transport/distribution networks in following expiry of the limitation The competent public authorities the area. period (three years, as of the at county and city level are obliged date the offence was committed), to organize within specialized If the applicant chooses to obtain the attestation certificate for the CSA structures so that against the approvals and endorsements construction will be issued based payment, according to the law and through the CSA, the fees and on a technical report that evidences at the request of the applicant, charges for issuing them are borne compliance with applicable quality the necessary endorsements and by the applicant. The fee amounts requirements. If the report shows approvals to authorize construction are determined by the issuers non-compliance, the certificate will works can be obtained. These according to the legal regulations not be issued. will be based on documentation specific to each approval area and to authorize the construction or are communicated to the issuers of List of works demolition works and specific building or demolition permits. A modification to Law no. 50/1991 technical approval documentation covers the list of works that can be submitted electronically. A new provision in the Norms states executed without a building permit. that the urban planning certificate This has been extended with three Methodological Norms: should include the regime for new categories: Law no. 50/1991 updating/modifying urban planning The Norms provide further details documents and related local • Aerial branching works in areas regarding the CSA and approvals/ regulations in a specific situation where they are not prohibited by endorsements from suppliers and if the applicant’s objective is not local urban planning regulations. administrators of utilities. To prepare covered by the approved urban
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planning documentation. In this an opportunity approval case, the applicant will be informed according to Law no. 350/2001 “Given the extent of whether: regarding the planning of the these amendments, territory and urban planning, with • The provisions of the approved the subsequent modifications their various documentation cannot and completions. impacts and be modified. • An opportunity approval should In summary, this article doesn’t seek consequences be obtained subject to the to provide a comprehensive list of for different conditions of Law no. 350/2001 the regulatory changes. Given the regarding the planning of the extent of the amendments, their players in the territory and urban planning, with various impacts and consequences real estate sector the subsequent modifications for different players in the real and completions. estate sector should be carefully should be carefully • It is possible to elaborate considered, and may lead to considered.” a modified urban planning further developments. documentation without obtaining
34 WWW.DLAPIPERREALWORLD.COM Towards a better functioning rental market: legislation for subletting residential apartments
Kristina Stavne, Stockholm
Continuing urbanization, limited housing construction relative to population growth and high production costs are resulting in lucrative subletting markets, particularly in Sweden’s bigger cities and university municipalities.
A survey by Sweden’s National unauthorized subletting, apartment landlord a possibility to terminate Board of Housing, Building and exchanges and trading with tenancy the agreement. In particularly Planning found that 83% of Swedish agreements. Rules regarding severe cases, the tenant may be municipalities reported a housing lodgers were also clarified. guilty of committing a crime and deficit in 2019.1 The situation is risks a fine or even prison sentence. especially challenging for people The regulations are intended on low incomes and younger to increase the circulation of Lodgers and new rules people new to the housing tenancy apartments, as it will no It is always permissible to have market, alongside the elderly and longer be as lucrative for tenants a lodger, so long as the tenant people with disabilities who need to retain apartments they don’t also lives or uses the apartment special accommodation. use themselves. They also aim to to a “considerable extent”. improve tenancy conditions and so Until recently, many aspects create healthier living environments relating to subletting apartments for people currently outside the “Every tenant should went unregulated in Sweden. tenancy market. be aware of the new However, October 1, 2019 saw new regulations come into force Every tenant should be aware regulations: they are on black market trading covering of the new regulations: they are mandatory and may tenancy agreements and other mandatory and may not be aborted misuses of apartments. Intended by agreement. Even if the rules not be aborted by to create a better functioning regarding subletting and lodgers agreement.” market for rental apartments, the are not specified in a tenancy regulations include new rules for agreement, a breach gives the
1 Bostadsmarknadsenkäten 2019 (Annual Housing Market Survey), National Board of Housing, Building and Planning (Boverket).
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Another criteria for lodging is other operations and consumer but since October 1, 2019 it also that the rent the tenant charges services. If excessively high rent is became a criminal offence to the lodger must be equivalent to charged, the tenant may forfeit the purchase a lease. The purchaser the lodger’s proportionate share tenancy agreement and must vacate risks being fined or sentenced to of the rent asked by the landlord the apartment. up to two years in prison or, if the from the tenant. If a tenant takes in offence is considered severe, up to two or more lodgers, the total rent If the apartment is subleased four years. The offence is severe the lodgers pay may not exceed the without approval from the if the amount of the transaction is rent the tenant pays to the landlord. landlord and an unreasonable of a considerable size, the sale is amount of rent is being charged, conducted professionally or at a If the tenant takes in a lodger and the tenant also risks being large scale, or if fraud or forgery doesn’t use the apartment to a fined or sentenced to serve a are involved. “considerable extent” the lease is maximum of two years in prison, considered a sublease. An approval as this arrangement is a criminal Ultimately, it is always the tenant from the landlord or Regional Rent offence from October 1, 2019. who bears the responsibilities for Tribunal (Hyresnämnden) is then However, the tenant may avoid the apartment during the subletting required. Unauthorized subletting liability if the offence is considered period. If the subtenant doesn’t may result in immediate termination to be minor, i.e. if the charged pay rent, disturbs neighbors and of the tenancy agreement without rent doesn’t exceed the maximum behaves badly in other ways, prior notice, and the tenant must allowed rent by 20% and the the tenant will be held responsible vacate the apartment. subletting arrangement has only for the damage and may even lasted for a limited time. risk eviction. What is a permissible rent for the sublease? Criminal offence: Benefits for all parties? The general rule is that the tenant to sell a lease and to In the long run, the new rules are may not charge the subtenant purchase an agreement expected to push the Swedish more rent than the tenant pays. The landlord may terminate a tenancy market in a direction where If the apartment is furnished lease if it becomes evident that the rents for subletting do not get and/or provided with special tenant requires money or accepts out of hand, unlawful subletting fittings, a supplement of up to payment when transferring a of apartments reduces, and more 15% may be added to the rent. tenancy agreement. In general, apartments are released onto the Furthermore, the tenant may only the regulations for selling a open market. This will, it is hoped, charge the subtenant an amount tenancy agreement have become benefit tenants, landlords and that covers the costs the tenant more strict. Previously, it was only Sweden’s tenancy market in general. has for electricity, broadband and illegal to sell a lease agreement,
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‘Cool’ is the new hot… will the UK see a buy-to-rent model that caters for all?
Jonathan Northey and Hayley Russell-White, London
As the buy-to-rent sector matures and more purpose-built BtR homes enter the marketplace, in response to rising numbers of people renting long-term, companies are rushing to maximize their brand recognition. Advertising and brand are becoming the battleground for the premium end of the market.
Co-living underpins the BtR The young higher-end rental market needed to attract a different model and the vision is to create will, of course, have its capacity, demographic to these schemes developments with a sense so BtR developers may also need to and to make them “cool”. of community. This especially broaden their offerings to include appeals to younger renters, the needs of young families and so-called Millennials and Gen Z, older people, providing long-term “Companies are who want somewhere to socialize options for those choosing renting. as well as sleep, with branding rushing to maximize predominantly targeting Some areas, like Manchester in their brand young professionals. northern England, are already suffering potential oversupply recognition in the Single living is also on the rise, and so developers and investors BtR marketplace” through personal choice or will be forced to consider other life circumstances, with urban parts of the market that have living and new technology also been left untargeted. Early signs leading some people to feel are developers such as Godwin isolated and seeking interaction. Developments, Sigma and Places for Current developments attempt to People Capital focusing on family sell this place-making vision and homes outside major towns and to demonstrate their schemes are cities. It will be interesting to see the more than just real estate. marketing and branding changes
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Battle of the targeted for 2021, The Collective has potential can generate. This type BtR brands attracted a cult following of renters of deal will make the value of the Tipi, which own the UK’s largest BtR who buy-in to the communal living “brand” even more important, with development, is a leading player in aspects of the BtR market. portfolios judged to be “cool” surely the race to gain substantial brand demanding a premium from other recognition. Its Wembley Park site Impacts on BtR deals less known equivalents. in London comprises a 5,000 home The market is clearly maturing complex with apartments designed and, for some people, renting is With the continued evolution with 24-hour concierges and stylish becoming “cool”. What effect will this of Proptech including artificial high-end interiors, using brands have on the structure of BtR deals? intelligence (AI) in property such as Samsung and John management, future developments Lewis. Each Tipi building on the Funding is one area that could will have to show knowledge and development has its own unique change. As the majority of funding application of the latest technology personality and design. Another deals for BtR developments are to attract the type of tenants they emerging brand is Uncle, which one-off forward funds, this will want. As in the student sector, operates in London and Manchester. not be practical if developers are developments will sink or swim on It offers onsite resident managers, to achieve the potential scale the services the management and flexibility for tenants to change their and numbers envisaged by some real estate can provide to users. minds within the first two weeks players in the market. There is With tenants voting quickly with of tenancy, all repairs resolved little debt funding in the market their feet, a building that receives within 48 hours or one day’s rent as it’s hard for funders to price: bad feedback or doesn’t provide returned, and free parcel collection. BtR developers haven’t yet built the necessary technology and a strong track record in what is a management services will see voids Both brands sell a lifestyle and relatively new sector, so the debt almost immediately. product in a way that is still new on offer is likely to be expensive. and hip for this market. Developers are also put off by the Data from the British Property long borrowing terms necessary for Federation confirms the scale The UK is also seeing companies acquisition, planning, development of the BtR revolution. The market partner with investors to launch and stabilization. One possible saw a 31% growth in completions global co-living platforms. alternative is for developers to turn between Q3 2018 and Q3 2019. The Collective has BtR properties to the capital markets to provide The pipeline of new projects is also in London and recently partnered funding. By borrowing corporately strengthening, with growth in the with DTZ Investors, a European against the business and portfolio, sector across the country showing property fund. The new fund will developers would avoid funding on how BtR is making an important seek to acquire or forward between a site-by-site basis. In the same way contribution to housing delivery. 6-10 co-living assets in London, as registered providers, leverage With the market running so hot, with a target gross asset value of would probably come via bonds. the race is on to spread the feeling GBP1 billion over the 10-year life Although this would be expensive of “cool”. of the fund.1 The fund announced initially, the cost of finance as the its first acquisition in 2019 with a portfolio grew would be reduced deal to forward fund The Collective and the costs of funding on each “With the UK’s Harrow. This development will scheme would not be necessary. comprise a 9-storey building with buy-to-rent market 222 shared living rooms, 465 square As portfolios grow, mature and running so hot, meters of incubator employment stabilize, the market will become space targeted at local start-up far more fluid for new entrants the race is on to 2 businesses and 632 m of shared who can invest directly in trading spread the feeling spaces including concept dining, stock. The interest in the Wembley gym, library, cinema, mindfulness Park site when it came on the of ‘cool’.” lounge and communal kitchen market shows how much interest on the top floor. With completion a transaction of this scale and
1 Property Funds World – https://www.propertyfundsworld.com/2019/10/14/279503/dtz-and-collective-launch-institutional-co-living-fund
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New technology and US real estate: seeking “the best way to do it”
Leigh Abrams Waterman, Minneapolis and Chicago
“‘We’ve always done it this way’ doesn’t cut it in real estate anymore. We need to find the best way to do it.” – Emerging Trends in Real Estate, United States and Canada 2020
Innovation and technology are In certain instances, these For example, Triple Five® transforming the US real estate developments can fall into a Worldwide, owner of the Mall industry across asset classes, with two category described by the MIT of America® in Minneapolis, prominent themes emerging. First, Center for Real Estate’s Steve is developing a USD250 million real estate operations are increasingly Weikal as “real estate fracking” – water park next to the mall, prioritizing the user experience. that is, “using technology to break which already features experiences Second, real estate-focused tech real estate use apart and put it such as an indoor theme park, companies are continuing to develop back together into something movie theater, mini golf and technology to maximize value and more productive, thus unlocking aquarium in addition to retail. operational efficiencies. overlooked asset value.” While not Whereas the integration of retail an exhaustive look, here are the and entertainment has always some of the effects of innovation been a driving force for Triple Five, “Innovation and and technology on various the proposed water park provides asset classes. a powerful example of catering to technology are the visitor experience, focusing on transforming the Retail attraction and leisure. Shopping malls that formerly US real estate housed retail stores and In addition, both retail landlords industry across a smattering of fast food and tenants have the opportunity restaurants are being transformed to continue incorporating asset classes into “consumer centers” technology to reshape the retail including retail, with mixed uses including experience. Whether by effectively fitness, health and wellness, a using consumer data to anticipate industrial, bricks-and-mortar presence for consumer needs, integrating a retail office, hotels online brand expansion, pop-up center app for consumer hire of a retail shops, food halls and concierge service while shopping, and multifamily.” consumer experiences. or adding digital payment systems
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to avoid checkouts, the future industrial facility – for example, desks, sofas and lounge chairs, retail experience will continue by using robotics and automation to enclosed office space and common to be influenced by innovation reduce labor costs, or incorporating area work space. In addition to and technology. warehouse design features to informing the tenant experience, enhance operational efficiencies. technology is providing owners and Industrial operators with new operational E-commerce demands are Office efficiencies. For example, through shaping the use and operation Real estate operators are creating the use of artificial intelligence, of warehouses, distribution experiences that more closely owners and operators can automate centers and storage facilities. focus on how people work, with an the leasing process (accounting, Data and technology allow owners, increased emphasis on community. administration and analysis). operators and developers to Whether through co-working Further, using Internet of Things better understand and predict spaces or enhanced dedicated open (IoT) solutions to automate heat, supply chains and respond spaces within a more traditional air conditioning, lighting, security accordingly. In an effort to respond office setting, tenants are seeking and other operational systems to real-time consumer demands a work experience focusing on allow owners and operators to and the premium placed on connection and user preference. collect and analyze data to better shortened delivery times, there is Owners, developers and operators predict maintenance needs and increased attention on “the last are incorporating new amenities further optimize operations mile” – distribution facilities and into office buildings to enhance and performance. return centers located closer to the work experience for tenants: consumer populations. converting rooftops into communal Real estate technology companies outdoor spaces and adding such as Liquid Space are also Similar to other asset classes, state-of-the-art fitness centers, providing a platform for users to industrial buildings are also on-site dry cleaning, meditation rent unused office space. A business increasingly incorporating smart spaces and mother’s rooms. with empty space it is willing to building technology to automate share can turn that space into certain operational systems. Office space itself is becoming additional revenue by renting out In addition, some e-commerce more flexible, offering tenants and such areas as conference rooms or companies want to integrate occupants more choice in work even individual private desks. advanced technology within an setting: traditional and standing
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Hotels From research to checkout, and operators are increasingly As with other asset classes, technology is providing hotel using technology to control consumer experience is a driving owners and operators with the security, lighting and thermostats, factor for the changing hotel ability to further cater to the both for operational efficiencies landscape. A growing number of guest experience. and to remain competitive with hotels incorporate co-working neighboring properties. spaces and enhanced public spaces, Multifamily New technology in areas beyond bringing a sense of community to Innovation and technology not real estate has similarly impacted the hotel experience. Operators are only impact the development and on multifamily property operations. also creating new partnerships in marketing of multifamily properties, For example, e-commerce has the wellness area to further enhance but also the ways owners and prompted owners and operators to the guest experience: examples operators interact with tenants. develop seamless package receipt include collaborations between Prospective tenants can research and retrieval systems, which may Westin and Peloton, and Kimpton online reviews for such buildings include a locker delivery system, Hotels and PUBLIC bikes. even before touring them – just as sending tenants an SMS or e-alert they would search hotels online. on receipt of a package, and Opportunities continue to emerge This makes online marketing critical allowing tenant access to a delivery throughout the travel process. to successful leasing. locker via key fob. Technology has allowed consumers to research amenities and review For multifamily buildings, hotel online ratings before booking. incorporating rooftop spaces and “Using technology to break Once ready to book, online booking updating shared community spaces and mobile check-in have eased the and fitness centers to enhance the real estate use apart and front-end process of travel. Further, tenant living experience are a given. put it back together into data and technology allow hotels to Multifamily owners and operators create and utilize a personal profile may also ease the lease process something more productive, for guests to better anticipate their in other ways: using online leases thus unlocking overlooked needs. Additionally, some hotels are with e-signatures; streamlining implementing artificial intelligence internal operations with updated asset value.” Steve Weikal, to create customer-facing chatbots management software to track MIT Center for Real Estate for processes such as ordering data and provide analytics; and amenities to guest rooms. providing Wi-Fi access in common areas or in-unit. Indeed, owners
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Contributors – Issue 37
Antoine Mercier Francesco Calabria Ioana Anton Paris Rome Bucharest +33 1 40 15 24 09 +39 06 68 880 633 +40 372 155 849 [email protected] [email protected] [email protected]
Manuel Indlekofer Arnhild Schnugh Kristina Stavne Munich Windhoek Stockholm +49 89 23 23 72 157 +264 61 242224 +46 8 701 78 97 [email protected] [email protected] [email protected]
Jonathan Gill Anders Bergene Jonathan Northey Hong Kong Oslo London +852 2103 0784 +47 2413 1631 +44 20 7796 6152 [email protected] [email protected] [email protected]
Edward Wong Karolina Kordulska Hayley Russell-White Hong Kong Warsaw London +852 2103 0673 +48 22 540 74 80 +44 20 7153 7535 [email protected] [email protected] [email protected]
George Shirlaw Paulo Anjo Leigh Abrams Waterman London Lisbon Minneapolis +852 2103 0424 +351 213 583 679 +1 612 524 3032 [email protected] [email protected] [email protected]
Carlotta Benigni Elena Zoita Milan Bucharest +39 02 80 618 631 +40 372 155 891 [email protected] [email protected]
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The law of this publication is stated at 17 January 2020.
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