Reflexions Issue 6
REA Biannual digest for theȵH[LRQV real estate investment management industry | Issue 6 | EMEA | 2017
Interview: Brexit and How Europeans live and The MLI Focus on real estate debt the real estate market what it costs them and the share deal Interview with Anthony Shayle, A new tax operating model? ΖVUHQWLQJDGZHOOLQJDSURȴWDEOH Head of Real Estate Debt EMEA, investment? UBS Asset Management
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Foreword Contents
Dear readers, WD[DWLRQDUUDQJHPHQWV6HSDUDWHO\ZHDOVR LYHUVLȴFDWLRQLVWKHIRFXVGULYLQJWKLV look at the OECD Multilateral Instrument VL[WKHGLWLRQRI5(ȵH[LRQV7UXHWR (MLI) and its impact on the practice of share D form, our magazine aims to provide deals, as it allows countries to change the readers with an insight into relevant tax allocation of taxation rights if shares in a and commercial issues the industry faces, UHDOHVWDWHFRPSDQ\DUHWUDQVIHUUHG as well as peering into markets outside the EMEA region, this time highlighting 7RVSLFHXSWKLVHGLWLRQRIRXUPDJD]LQH $XVWUDOLD0RUHRYHUZHH[WHQGRXUIRFXVWR we gather the results of the latest Deloitte spotlight less traditional asset classes, such Property Index, this outlines the main DVLQIUDVWUXFWXUHDQGUHDOHVWDWHGHEW trends in the European residential property PDUNHW%HVLGHVKRXVLQJDQGWUDQVDFWLRQ Alongside a growth in cross-border pension prices, this edition also focuses on the investment — globally and for the time rental market, which plays an important Page 4 Page 8 Page 14 being especially in Asia — the real estate UROHLQWKHUHDOHVWDWHLQGXVWU\ GHEWPDUNHWLVRQWKHULVHΖQDQLQWHUYLHZ with Anthony Shayle, Head of Real Estate Last but not least, we jump to the other Debt EMEA within UBS Asset Management’s side of the world, featuring a familiar topic Real Estate & Private Markets (REPM) to us and one of growing interest to the business, we explore market trends, alternative investment management world: distressed debt and market regulation in LQIUDVWUXFWXUH:HLQWHUYLHZ4Ζ&ȇV&KLHI WKHFRQWHQWRIGHEWOHYHUDJLQJ Executive Damien Frawley to understand 04 08 14 his view on infrastructure assets in Interview: Brexit and How Europeans live and 7KHLQGXVWU\FRQWLQXHVWRIDFHNH\ Australia and overseas, discovering why Focus on real estate debt the real estate market what it costs them discussions in the wake of Brexit and he thinks it is an investment with multiple Interview with Anthony Shayle, A new tax operating model? ΖVUHQWLQJDGZHOOLQJDSURȴWDEOH the possible unravelling of the close EHQHȴWV Head of Real Estate Debt EMEA, investment? inter-relationship of the city of London UBS Asset Management DQG(XURSHDQPDUNHWV7KHUHIRUHLWLV :HEHOLHYHWKDWDOORIWKHVHVXEMHFWVZLOO imperative to revisit this topic, shedding continue to be debated over the coming further light as the events unfold; this adds weeks and months, but for now, we wish DUHDOHVWDWHȵDYRUWRWKHFRQVLGHUDWLRQV you an engaging read! that are discussed in the broader LQYHVWPHQWPDQDJHPHQWLQGXVWU\ Our Deloitte partners in the UK examine 24 30 the consequences for investment managers The MLI Interview: in terms of their corporate structures and and the share deal Infrastructure in Australia Interview with Damien Frawley, Chief Executive at QIC
Benjamin Lam David Brown EMEA Real Estate Funds Co-Leader EMEA Real Estate Funds Co-Leader
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Anthony Shayle :LWKRYHU\HDUVRIH[SHULHQFHLQUHDOHVWDWHGHEWDV the Head of Real Estate Debt EMEA, Anthony Shayle is focused on growing the European real estate debt fund EXVLQHVVZLWKLQ8%6$VVHW0DQDJHPHQW3ULRUWRMRLQLQJ Focus on UBS, Anthony held various senior investment, asset PDQDJHPHQWGHEWVWUXFWXULQJȴQDQFHDQGDFFRXQWLQJ positions in the areas of private equity and real estate at &XU]RQ*OREDO3DUWQHUV$;$5(Ζ052'$0&2%=:DQG %DQNHUV7UXVW$QWKRQ\LVERWKDIHOORZRIWKH$VVRFLDWLRQ real estate debt RIWKH&KDUWHUHG&HUWLȴHG$FFRXQWDQWVDQGWKH5R\DO ΖQVWLWXWLRQRI&KDUWHUHG6XUYH\RUV Pierre Masset, Partner at Deloitte Luxembourg, interviewed Anthony Shayle, Head of Real Estate Debt 1. At various occasions in the last few years, we have talked about the “wall of PRQH\ȋFRPLQJLQWRDOWHUQDWLYHLQYHVWPHQWV&RXOG\RXSOHDVHJLYHXVDVHQVH EMEA within UBS Asset Management’s Real Estate of where the market is today, both in terms of supply and demand and how this & Private Markets (REPM) business, where they explored ȊZDOORIPRQH\ȋDHFWVWKHZD\LQZKLFKLQYHVWPHQWVDUHPDGH" 7KLVLVDYHU\LQWHUHVWLQJTXHVWLRQEHFDXVHWKHVRFDOOHGȊZDOORIPRQH\ȋKDVDWYDU\LQJ market trends, distressed debt and market regulation WLPHVEHHQTXDQWLȴHGGLHUHQWO\DQGLWVVRXUFHKDVVKLIWHGJOREDOO\6RLIZHZHUHWRJR LQWKHFRQWH[WRIGHEWOHYHUDJLQJ back far enough, we could say that the money initially came from the US, then it came IURPWKH0LGGOH(DVWDQGQRZLWLVFRPLQJIURP$VLD:HFRXOGWKXVVD\WKDWWKHȊZDOOȋLV somewhat of a global tsunami moving around the world according to the wider economic F\FOHDFURVVRXUSODQHW
7KDWVDLGZKHUHLVWKHPRQH\FRPLQJIURPQRZ"ΖWLVFOHDUO\FRPLQJIURP$VLDDWWKLV PRPHQWLQWLPHΖWLVKDUGWRJRDQ\ZKHUHZLWKRXWVHHLQJWKHPHQWLRQRI.RUHDQ&KLQHVH ZKLFKGRPLQDWHWRGD\ȇVPDUNHW DQGPRUHUHFHQWO\-DSDQHVHPRQH\7KLVSURYHVWKH VXEVWDQWLDOJURZWKRIWKHVHHFRQRPLHVΖQDGGLWLRQZKDWFKDUDFWHUL]HVWKHPLVWKHIDFWWKDW WKH\DUHPRYLQJPRUHDQGPRUHLQWRSHQVLRQSODQQHGHFRQRPLHV7KHUHIRUHWKLVLVDFDVH RIJOREDOGHPRJUDSKLFVDVPXFKDVLWLVDERXWJOREDOHFRQRPLFV:HDOVRKDYHWRUHFRJQL]H that the investment industry, in which we are all working, is based around the source of WKHPRQH\FRPLQJRXWRIYDU\LQJW\SHVRILQVWLWXWLRQDOLQYHVWPHQWSRFNHWV:HFRXOGWKXV say that it is this demographic shift into pension fund-based economies that is fueling the VRFDOOHGȊZDOORIPRQH\ȋ
In terms of the supply and demand, we see a direct correlation between the volume of WUDQVDFWLRQVLQWKHUHDOHVWDWHPDUNHWDQGWKHRSSRUWXQLWLHVIRUGHEWȴQDQFLQJ LIWKHȴUVW RQHIDOOVWKHVHFRQGPXVWE\GHȴQLWLRQIDOODVZHOOEHFDXVHUHDOHVWDWHWUDQVDFWLRQVDUH SUHGRPLQDQWO\OHYHUDJHG :HKDYHREVHUYHGDWUHQGVKLIWIURPYHU\KLJKO\OHYHUDJHG WUDQVDFWLRQVSUH*)& JOREDOȴQDQFLDOFULVLV WRORZHUOHYHUDJHGRQHV
7RSXWWKDWLQFRQWH[WWKHPDUNHWKDVJRQHIURPȂSHUFHQWVHQLRUGHEWOHYHUDJHSUH *)&OHYHOVGRZQWRȂSHUFHQW7KLVPHDQVWKDWZKLOHWKHUHLVVWLOOGHPDQGIRUGHEW LWPD\EHPDUJLQDOO\VPDOOHU7KHGHEWPDUNHWIROORZVWKHWUHQGRIWKHLQYHVWPHQW WUDQVDFWLRQPDUNHWȂLIWKHODWWHUIDOOVDZD\WKHIRUPHUZLOOIROORZVXLW7KLVLPSOLHVWKDW ORDQVZLOOUXQWRWHUP7KLVSRLQWLVFUXFLDOEHFDXVHDVWKHPDUNHWFRQWLQXHVWRJURZ
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one would expect debt transactions to as well as the investors coming into our one thing that really matters in the NPL • 7KHȴUVWRQHLVWKDWOHYHUDJHPD\EHXVHG repay earlier than the stated maturity fund, was not to focus on central London business is the ability to assume control as a subscription line in order to manage SRLQWV+RZHYHUDVWKHPDUNHWWXUQVRYHU DVDWDUJHWIRUGHSOR\LQJFDSLWDO%\GRLQJ RI\RXUDVVHWΖQP\YLHZRQHRIWKHWKLQJV draw-downs, in order to avoid taking from growth to contraction, people who so, we have carefully avoided substantial having held back the Italian market from huge chances with equity in the balance own real estate may choose not to sell it, H[SRVXUHWRFHQWUDO/RQGRQΖQVWHDGWKH international lenders is the enforceability sheet and dragging down performance, which means they do not repay early, and focus has been on a) anywhere outside of of its charges and, in this respect, the NPL which can be considered perfectly FRQVHTXHQWO\ORDQVUXQWRPDWXULW\ prime central London and b) alternative process in Italy must address this problem legitimate 7RWKLVHQGRQHRIWKHNH\LQGLFDWRUVIRU VHFWRUVWKDWFRXOGRHUWKHSRVVLELOLW\WR DQGȴQGDVROXWLRQWRLW • 7KHVHFRQGUHDVRQLVWRERRVWUHWXUQV the state of the market is whether or not generate yield on the equity investment loan maturities are shorter than stated or made, in other words, sectors where 'R\RXWKLQNDULVLQJLQWHUHVWUDWH ΖIZHORRNEDFNKLVWRULFDOO\ȂUHDO DUHDFWXDOO\UXQQLQJWRWHUP2IFRXUVHZH there is likely to be cap rate compression, HQYLURQPHQWLVOLNHO\WRFKDQJHWKH estate lending returns were great; they were are all so familiar with the consequences of and where there are prospects of further current picture when it comes to real potentially outstripping traditional equity, loans running beyond term; we have seen LQFRPHJURZWK HVWDWHGHEW" which many investors became accustomed WKDWRYHUWKHODVW\HDUV7RVXPXSRQH 7KLVLVDQLQWHUHVWLQJTXHVWLRQ1RLW WRVHHLQJ1HYHUWKHOHVVWKDWFRXOGQRWODVW of the things to bear in mind is that the 3. In the debt space, in the last year should not, but in practical terms, and today the returns we see are much choice between an equity only investment ZHKDYHVHHQDODUJHSRUWLRQRIORDQV LWFDQEH7KHLVVXHLVWKHFRVWRIFDSLWDO PRUHFRQVWUDLQHG7KHUHIRUHVRPHIXQG DQGDOHYHUDJHGHTXLW\LQYHVWPHQW LHZLWK FRPLQJIURPEDQNVȇGHOHYHUDJLQJ So, in the case of rising interest rates, is PDQDJHUVȴQGLWSHUIHFWO\OHJLWLPDWHWR GHEW LVGULYLQJEDQNLQJPDUNHWVZRUOGZLGH where do you think we are in that the rise driven by central bank policy or add some leverage to lift the return base, SURFHVV" by the risk push resulting from investor because investors seek superior levels of +RZGRHVWKLVFKDQJHWKHZD\\RX It is fair to say that the UK market has appetite? If it is caused by central bank \LHOGΖWLVRIFRXUVHSHUIHFWO\IDLUWRGRWKDW DOORFDWHFDSLWDO"2QDGD\WRGD\EDVLV probably done most of the clearing out policy, everybody’s interest rate should but what everybody has to remember is DVDIXQGPDQDJHUKRZGRHVWKLV of distressed debt and non-performing be rising, and so investors should be on that leverage brings volatility to equity level FKDQJHWKHZD\\RXORRNDWWKLQJV ORDQV 13/V 0DQ\SHRSOHVHHPWREH DOHYHOSOD\LQJȴHOG2QWKHRWKHUKDQGLI UHWXUQV6RWKHTXHVWLRQWKHQEHFRPHV JLYHQWKDWZHFRXOGSRWHQWLDOO\EHQHDU fond of NPLs now, but as a traditional LWLVFDXVHGE\ULVNSURȴOLQJLHLQYHVWRUV would it be acceptable to leverage a debt WRDWRSRIWKHF\FOHPRPHQW" lender, the preference is to originate debt WDNLQJDGLHUHQWSHUVSHFWLYHWKHQWKDW fund? And the immediate reaction Indeed, there is a high probability that you ZLWKRXURZQGXHGLOLJHQFH+HQFHIURP creates opportunities in the market, and, ΖDOZD\VUHFHLYHIURPLQYHVWRUVLVȊQR\RX could be lending or investing at the top of my perspective, the sooner the market is ultimately, one person’s risk is another DUHQRWSXWWLQJGHEWRQGHEWȋ+RZHYHUD WKHF\FOHΖWKLQNLWLVYHU\GLɝFXOWWRMXGJH FOHDUWKHPRUHOLNHO\\RXDUHWRȴQGVWDEOH SHUVRQȇVRSSRUWXQLW\ distinction should be made between the the exact point at which the cycles will turn OHQGLQJRSSRUWXQLWLHV$VPHQWLRQHG debt taken on board (which is a liability in RYHUΖWLVYHU\HYLGHQWWKDWZKHQ\RXDUH previously, it is believed the UK has pretty 5. Could you please share with us your the balance sheet) and the debt leveraged close to the top of the cycle, you do change PXFKFOHDUHGLWVHOI6SDLQKDVFRPSOHWHG YLHZVRQOHYHUDJHGGHEWIXQGV" upon debt (which is an asset in the balance \RXULQYHVWPHQWVWUDWHJ\7KHUHIRUHDV a large part of its work and Germany and 7KLVLVDSKHQRPHQRQWKDWKDVEHHQVHHQ VKHHW 7RWKLVHQGOHYHUDJHLQDGHEWIXQG early as 2013, we started raising a lending )UDQFHKDYHFOHDUO\GRQHWKHLUV7KHUHLV LQWKH86DQGLVQRZȊFRPLQJWRDWKHDWHU LVQRWXQOLNHWKDWLQDUHDOHVWDWHIXQG product linked to part of the upside on real RQHFRXQWU\UHPDLQLQJȂΖWDO\7KLVSUHVHQWV QHDU\RXȋ7KHUHLVDYHU\HDUO\LQGLFDWLRQ 7KHRQO\UHDOGLHUHQFHLVWKDWIRUGHEWLW HVWDWH2XUYLHZDVDGYLVHGWRRXUWHDP a great deal of opportunity though, as the that debt funds across Europe are now is leveraging contractual assets as such VWDUWLQJWRORRNDWOHYHUDJLQJWKHPVHOYHV the related liabilities, interest rates and /HWȇVVWDUWZLWKWKHEDVLFSULQFLSOHV maturity exposures should be monitored Is leverage a bad thing? A subsequent and matched and, of course, the debt level TXHVWLRQZRXOGEHZK\SXWLWWKHUH"7KHUH should be kept within reasonable debt 7RVXPXSRQHRIWKHWKLQJV are two main reasons: WDUJHWV to bear in mind is that the 6R\RXWKLQNWKDWLIZHVWD\ZLWKLQ WKRVHUHDVRQDEOHGHEWWDUJHWV choice between an equity only UHJXODWLRQLVQRWUHDOO\UHTXLUHG" 7KHPRUH\RXOHYHUDJH\RXUGHEWSRUWIROLR WKHPRUH\RXORRNOLNHDEDQN1HHGΖVD\ investment and a leveraged more? HTXLW\LQYHVWPHQW LHZLWK debt) is driving banking markets ZRUOGZLGH
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:KLOVWVSHFXODWLRQRQWKHSROLWLFDOSURFHVVRI%UH[LWLVKDUG to avoid, the real estate market is primarily focused on the VKRUWWRPHGLXPWHUPHHFWVRQWKH8.HFRQRP\ as the outcome of the negotiations, and to some extent the on-going uncertainty as to what the outcome will be, are impacting on investment decisions and the UK FRQVXPHU$Q\LPSDFWRQERWKWKHDELOLW\WRFRQGXFWWKH business of investing in real estate is currently a second RUGHUFRQVLGHUDWLRQDHFWLQJRQO\WKRVHZKRRSHUDWH or invest via regulated vehicles, for whom the loss of SDVVSRUWLQJULJKWVXQGHU(8ȴQDQFLDOVHUYLFHVUHJXODWLRQ PD\UHTXLUHDQDGMXVWPHQWWRWKHLUEXVLQHVVPRGHO For real estate investment managers, there has yet been little sign of a rush to relocate functions and individuals as many are waiting until the shape of any transition arrangements are clear; this is in contrast to banks and insurers who are already starting to enact their FRQWLQJHQF\SODQV
:HH[SHFWKRZHYHUWKDWDVVHWPDQDJHUV 5HORFDWLQJVLJQLȴFDQWEXVLQHVVIXQFWLRQV will start to move into a higher gear before and management fee streams from the UK the end of the year as they consider to another jurisdiction brings with it two how to respond to the reality of the UK PDMRUWD[FRQVLGHUDWLRQVȃWKHRQHRFRVW DVDWKLUGFRXQWU\WRWKH(8)RUPRVWLQ of transfer and the on-going impact of a the alternative or private assets space, ȴUPȇVHHFWLYHWD[UDWHRQLWVIHHUHYHQXHV including real estate, the range of options as to where to domicile activities and For businesses in the sphere of investment people in a new regulated structure is management, most of these issues are quickly boiling down to a choice between similar across asset classes, and the article Brexit and Ireland and Luxembourg, with other below is based on the recent analysis put jurisdictions only really entering the forward in the last edition of Performance IUD\ZKHUHWKHUHLVDVLJQLȴFDQWH[LVWLQJ magazine, a Deloitte publication dedicated the real estate market EXVLQHVVWKHUHDOUHDG\ WRΖ0 :KLOVWOHJDODQGUHJXODWRU\LVVXHVKDYH tended to be front-of-mind to date, in practice it is likely that a combination of A new tax operating model? ESMA and the natural competitive tension 5HORFDWLQJVLJQLȴFDQWEXVLQHVV between fund domicile jurisdictions will ensure that the scope for regulatory functions and management fee DUELWUDJHEHWZHHQMXULVGLFWLRQVLVOLPLWHG As a result, other issues, such as the LPSDFWRQDJURXSȇVWD[SURȴOHDQGWKH streams from the UK to another David Brown Gavin Bullock Murray A. Mclaren FRVWVRIVWDɝQJDQGUXQQLQJDQRɝFHZLOO EMEA Real Estate Partner Director DOVREHNH\WRWKHGHFLVLRQ Funds Co-Leader 7D[ 7D[ jurisdiction brings with it major Deloitte Deloitte Deloitte WD[FRQVLGHUDWLRQV
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%UH[LWUHVWUXFWXULQJ of capital, but Luxembourg has been the In practice, many of the larger institutional How much activity is transferred to 7KH8.ȇVGHSDUWXUHIURPWKH(8FRXOGKDYH increasingly common choice of managers real estate investment managers already (8FRDQGZKDWSURȴWWKHWUDQVIHUUHG DVLJQLȴFDQWLPSDFWRQKRZ8.EDVHGDVVHW as a venue for fund formation likely to operate via AIFM-regulated management DFWLYLW\JHQHUDWHV7KLVLQWXUQLVOLNHO\ PDQDJHUVRSHUDWHZLWKLQWKHVLQJOHPDUNHW DSSHDOWRWKHZLGHVWUDQJHRILQYHVWRUV companies within the EU, many in to depend upon what EUco’s regulator 7KLVKDVQRWWRGDWHUHTXLUHGWKHIRUPDWLRQ /X[HPERXUJ(YHQWKHVHKRZHYHUDUH will require in terms of substance 7KH(8ȇV8&Ζ760Ζ)Ζ'DQG$Ζ)0'UXOHV of a Luxembourg-based manager, however, likely to need to increase the size of DQGORFDOSUHVHQFH LHSHRSOHȊRQ currently allow UK-regulated companies and many such funds are managed under their operations within the EU relative to WKHJURXQGȋ DQGWKHWUDQVIHUSULFLQJ WRSDVVSRUWDFURVVWKH(88.EDVHGDVVHW SDVVSRUWLQJULJKWVIURPWKH8. the UK, not least in response to ESMA’s SROLFLHVWKDWDUHDSSOLHGWR(8FR managers may currently rely on these ongoing review of the level of delegation of 7KHWUHDWPHQWRIDQ\EUDQFKHV passporting rights in order to distribute 7KHUHDUHDOVRPDQ\PDQDJHUVSDUWLFXODUO\ responsibilities from EU managers to third WUDQVIHUUHGWR(8FRΖI(8FRLVLQD products in the EU, for example through those in the real estate private equity FRXQWULHV MXULVGLFWLRQWKDWH[HPSWVEUDQFKSURȴWV EU branches, and manage EU-domiciled space who will continue to use a Delaware IURPWD[WKRVHEUDQFKSURȴWVZLOORQO\ funds or segregated portfolios directly RU(QJOLVKOLPLWHGSDUWQHUVKLSPRGHO 7KHWUDQVIHURIGLVWULEXWLRQDQGSRUWIROLR EHWD[HGLQWKHEUDQFKMXULVGLFWLRQV IURPWKH8. management activity from the UK to 7KHUHZLOOEHQRDGGLWLRQDOWD[RQEUDQFK 8.DVVHWPDQDJHUVDUHOHVVDHFWHGE\ (8FRFRXOGKDYHDQXPEHURIVLJQLȴFDQW SURȴWVLQ(8FRȇVMXULVGLFWLRQDQG(8FR 7KHSUHFLVHLPSDFWRI%UH[LWRQWKHVH %UH[LWWKDQIRUH[DPSOHEDQNV+RZHYHU WD[FRQVHTXHQFHV.H\TXHVWLRQVWKDW ZLOORQO\SD\WD[RQWKHLUȊKHDGRɝFHȋ arrangements (and on so many things) it is likely that some will need to make managers need to consider include: SURȴWV LVFXUUHQWO\XQFOHDUDQGLWLVOLNHO\WRDHFW important structural changes to continue • Should tax have a bearing on where Local tax rules, including what expenses GLHUHQWPDQDJHUVLQGLHUHQWZD\VΖW operating across the EU, particularly if they EUco is located? can be deducted from taxable income will depend in particular on the types of are to continue to manage funds formed in and what tax incentives and allowances product that are managed, the manager’s /X[HPERXUJ7KHVHFKDQJHVDUHOLNHO\WR • :LOOWKHWUDQVIHURIEUDQFKHVRU DUHDYDLODEOH client base, and how the various EU include undertaking more activity through management agreements to EUco give GLUHFWLYHVDUHUHOLHGXSRQ)XQGYHKLFOHV companies established in the EU, which we ULVHWRWD[DEOHGLVSRVDOVRU9$7DEOH for pan-European exposure to direct UHIHUWRDVȊ(8FRȋLQWKLVDUWLFOH supplies? If so, is relief available? real estate are domiciled in a variety of • :KDWDUHWKHRQJRLQJWD[FRQVHTXHQFHV 7KH8.ȇVGHSDUWXUHIURPWKH jurisdictions, often depending on source of operating EUco? (8FRXOGKDYHDVLJQLȴFDQW In this article, we discuss some of the considerations that are pertinent to these Current structure Possible new structure TXHVWLRQV impact on how UK-based
UK UK Where to establish EUco asset managers operate co co Legal and regulatory considerations, together with the location of existing operations, are likely to be the key drivers ZLWKLQWKHVLQJOHPDUNHW UK RIZKHUH(8FRLVORFDWHG1RQHWKHOHVV EU the impact of the tax regime that applies Of course, if EUco is based in jurisdictions WR(8FRVKRXOGEHDVVHVVHG Management with a lower tax rate than the UK’s, such as agreements EU the Republic of Ireland, the new structure co Corporate tax regimes FRXOGJHQHUDWHWD[EHQHȴWV+RZHYHUDQWL An obvious question is whether the activity avoidance rules would need to be reviewed, Management that is transferred to EUco will be taxed at a Branch/s Clients agreements such as the UK’s controlled foreign GLHUHQWUDWHWRWKH8.ȇV7KH8.FRUSRUDWH FRPSDQLHVDQGGLYHUWHGSURȴWVWD[UXOHV tax rate is currently 19 percent, and will IDOOWRSHUFHQWE\7KHVHUDWHVDUH 5HSDWULDWLQJSURȴWV Branch/s Clients VLJQLȴFDQWO\ORZHUWKDQWKHUDWHVLQPDQ\ Currently, the EU parent and subsidiary RIWKH8.ȇVQHLJKERUVLQFRQWLQHQWDO(XURSH directive can prevent withholding tax from :LOOSHUIRUPLQJGLVWULEXWLRQDQGSRUWIROLR being applied to dividends paid from an EU management through EUco lead to VXEVLGLDU\WRLWV(8SDUHQW7KLVPHDQVWKDW VLJQLȴFDQWO\KLJKHUFRUSRUDWHWD[OLDELOLWLHV" a dividend received by a UK company from 7KLVLVOLNHO\WRGHSHQGRQDIHZIDFWRUV an EU subsidiary should currently be free including: IURPZLWKKROGLQJWD[
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Once the UK leaves the EU, this withholding ΖWLVZRUWKUHPHPEHULQJWKDW9$7UXOHVDUH Interestingly, in some EU jurisdictions, Some UK managers operate in the EU 2SHUDWLQJ(8FR As noted previously, key issues are likely tax exemption may no longer apply, and JRYHUQHGE\(8OHJLVODWLRQ7KLVPHDQV the relief permitting tax-neutral transfers WKURXJKUHSUHVHQWDWLYHRɝFHVUDWKHUWKDQ Any decision to relocate will naturally WRLQFOXGH9$7OHDNDJHDULVLQJRQFURVV UK companies may need to look to the WKDWSRVW%UH[LWWKH9$7ODQGVFDSHZLOO could potentially be clawed back if the EUDQFKHV$SSO\LQJWKHUXOHVDQGUHOLHIWR LQYROYHFRQVLGHULQJRWKHUVSHFLȴFQHHGV ERUGHUFKDUJHVH[SRVXUHWRGLHUHQW 8.ȇVWD[WUHDWLHVIRUZLWKKROGLQJWD[UHOLHI change, adding an element of uncertainty transferor ceases to be an EU company WKHWUDQVIHURIUHSUHVHQWDWLYHRɝFHVFDQ relating to a manager’s business, including rates of corporate tax, and the risk of Not all tax treaties provide a full exemption WRDQ\DVVHVVPHQWRIKRZ9$7ZLOOLPSDFW ZLWKLQDGHȴQHGSHULRGDIWHUWKHWUDQVIHU FDXVHGLɝFXOWLHVWKDWQHHGWREHZRUNHG that of supporting its funds’ own holding ZLWKKROGLQJWD[RQSURȴWUHSDWULDWLRQ IURPGLYLGHQGZLWKKROGLQJ)RUH[DPSOH EXVLQHVVRSHUDWLRQVLQWKHIXWXUH WDNHVSODFH7KLVPHDQVWKDWZKHQWKH8. 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Deloitte Property Index 2017 How Europeans live and what it costs them Is renting a dwelling DSURȴWDEOHLQYHVWPHQW"
Petr Hana Vojtech Petrik Senior manager Consultant Deloitte Deloitte
Apartment rental yields in European cities ranges between 2 percent and 9 percent. At the same time, the highest transaction price growth in 2016 was surprisingly recorded in Slovenia. The most expensive city remained inner London. These are selected results of the most recent Deloitte Property Index, which compares the market with residential properties in selected European countries and cities and in Israel.
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he sixth edition of Deloitte Property Focus: Rental market Index study focused on the rental ΖVUHQWLQJDGZHOOLQJDSURȴWDEOHLQYHVWPHQW" 7 PDUNHWIRUWKHȴUVWWLPHLQLWV KLVWRU\5HQWDOKRXVLQJLVWKHPRVWSRSXODU DPRQJ*HUPDQV SHUFHQWRIWRWDO 14.5 QXPEHURIKRXVHKROGV RU'DQHV 6.7 percent) and the least among Slovenians 12.7 14.7 9.7 7.0 21.7 11.7 SHUFHQW 7KHVHȴJXUHVVKRZWKDWWKH 8.0 11.9 4.3% Average monthly 7.9 17.5 4.2 4.3% 29.0 9.4 rent per square rental market plays an important role in 4.0% 4.1% 4.2% 4.2% 28.2 3.8% meter in EUR WKHUHDOHVWDWHEXVLQHVVUHFHQWO\$Q\RQH 3.4% 3.6% 3.6% 3.1% 3.2% 3.3% considering buying an investment property 2.8% 2.8% (also known as buy to let method) will be 2.0% interested in what return the property will give him or her, in other words, its \LHOG'HORLWWH3URSHUW\ΖQGH[WKHUHIRUH % dealt with the comparison of average rent Inner Paris Vienna Graz Munich Algarve Linz Lyon Outer Marseille Milan Frankfurt Brussels Turin Ghent Hamburg Annual rental London (inside) AT AT DE** Region AT FR London FR IT* DE** BE IT* BE DE** OHYHODQGWUDQVDFWLRQSULFHRIDGZHOOLQJ UK FR PT UK yield 7KHORZHVW\LHOGIURPUHQWLQDOORIWKH compared cities was recorded in central /RQGRQ SHUFHQW IROORZHGE\LQVLGH 10.9 17.9 7.0 14.4 3DULV SHUFHQW DQGWKHKLJKHVWLQ 14.5 19.2 14.0 2GHQVH'HQPDUN SHUFHQW IROORZHG 10.6 16.0 7.6 5.5% 6.9 18.0 10.0 11.3 7.5 12.6 5.4% 5.4% by Budapest, the Capital of Hungary 5.1% 5.2% 4.8% 4.9% SHUFHQW )URPDQRWKHUSHUVSHFWLYH 4.6% 4.7% 4.7% 2 - 4.3% Copenhagen was the place with the highest 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% PRQWKO\UHQW Ȝ SHUVTXDUHPHWHU On the other hand, the lowest rent level has been seen in Algarve Region in 3RUWXJDO ȜSHUVTXDUHPHWHU
Antwerp Ile de Ljubljana Galway Valencia Cork Lisbon Amsterdam Brno Rome Berlin Dublin Madrid Barcelona Maribor Prague BE France SI IE ES IE PT NL CZ IT* DE** IE ES ES SI CZ FR 4.4 - 5.5%
17.2 6.2 9.7 29.3 5.8 8.6 6.4 8.9% 7.9 22.0 7.9% 8.8 10.4 8.7 5.8 10.5 7.8% 6.8 7.7% 7.8% 7.2% 7.4% 6.4% 6.6% 6.8% 5.8% 5.9% 6.0% 6.0% 6.1%
5.6 - 8.9%
Porto*** Manchester Den Haag Warsaw Ostrava Rotterdam Kraków Aarthus Łódź Wroclaw Copenhagen Debrecen Győr Budapest Odense ‡ ‡ ‡ ‡ PT UK NL PL CZ NL PL DK PL PL DK HU HU HU DK *Older dwellings **Bid price ***New and older dwellings ‡ Net yield
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United Kingdom 4,628 EUR/m² Denmark -9.0% 3,235 EUR/m² According to housing development $YHUDJHWUDQVDFWLRQSULFHRIWKHQHZ 10.8% intensity, the volume reached 2.8 GZHOOLQJ (85VTXDUHPHWHUV completed apartments and 3.7 initiated $QQXDOFKDQJH apartments per 1,000 citizens across the Ireland European Union in 2016. The greatest 3,458 EUR/m² development intensity of all selected <0% 6.8% Poland countries was seen in France (6.8 0% - 5% Netherlands*** 1,212 EUR/m² completed dwellings per 1,000 citizens). 5% - 10% 2,137 EUR/m² 9.7% This country also recorded the highest 4.1% 10% - 15% total number of completed dwellings reaching 453 thousand. In terms of 15% < initiated dwellings the highest intensity in 2016 was found in Austria (7.6 started Belgium *Older dwellings 2,025 EUR/m² Germany** dwellings per 1,000 citizens), Israel (6.1), 2,216 EUR/m² **Bid price 5.5% Czech and France (5.7). 8.5% ***New and older dwellings Republic 2,025 EUR/m² The structure and quality of the housing 5.5% stock can generally be considered as Source: National Statistical Authorities, Deloitte one of the indicators of quality of life data calculations. and regional development. The average housing stock in the European Union Austria in 2016 remained at 486.6 apartments 2,572 EUR/m² per 1,000 citizens. In total numbers, 2.4% this represents 245.6 million dwellings. France Hungary More than 1.2 million dwellings have 4,005 EUR/m² 1,140 EUR/m² been added based on year-to-year 1.4% 9.4% comparison. Similarly to 2014 and 2015 in a comparison of selected countries, Portugal reported the greatest housing Slovenia stock recalculated per 1,000 citizens, 2,150 EUR/m² exceeding the European average by more 26.5% than 15 percent. The lowest housing stocks in 2016 per 1,000 citizen was found again in Israel (295 dwellings) and Poland (372 dwellings). Portugal* 1,068 EUR/m² 3.7% Italy 2,359 EUR/m² Spain -1.5% 1,933 EUR/m² 15.2%
Israel 3,790 EUR/m² 3.4%
<0.0% 0.0% - 5% 5% - 10% 15% < 10% - 15%
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$YHUDJHWUDQVDFWLRQSULFHRIDbQHZGZHOOLQJ (85VTXDUHPHWHUV DQGFKDQJH ΖQRUGHUWRDVVHVVWKHDRUGDELOLW\RIRQHȇVRZQKRXVLQJ'HORLWWH3URSHUW\ΖQGH[ measured how many average gross annual salaries it takes to buy a standardized new Vienna 1.8% 3,999 GZHOOLQJ VTXDUHPHWHUV )RUWKHȴUVWWLPHLQWKHKLVWRU\RIWKHΖQGH[DRUGLQJQHZ AT Graz 1.3% 3,063 KRXVLQJLVWKHPRVWGLɝFXOWIRU&]HFKFLWL]HQVDVWKHFRVWRIDQDYHUDJHDSDUWPHQWLV Linz 1.9% 2,842 HTXDOWR DYHUDJHJURVVDQQXDOVDODULHVDOPRVWRQHZKROHDQQXDOVDODU\PRUHWKDQ WKH%ULWLVKZKRUDQNHGVHFRQGΖQRSSRVLWHWKHPRVWDRUGDEOHKRXVLQJFDQEHIRXQG Brussels 2.7% 3,096 QHZO\LQWKH1HWKHUODQGVZKHUHDSHUVRQQHHGVWRRQDYHUDJHVDYHRQO\\HDUVWREX\ BE Antwerp 0.5% 2,925 DQHZGZHOOLQJ Ghent -3.2% 2,777 Prague 10.5% 2,368 CZ Brno 15.2% 1,939 $RUGDELOLW\RIRZQKRXVLQJ Ostrava -3.2% 1,149 $YHUDJHJURVVDQQXDOVDODULHVLWWDNHVWREX\DVWDQGDUGL]HGQHZGZHOOLQJ VTXDUHPHWHUV Berlin 9.7% 3,510 Hamburg 6.1% 4,020 12 DE** Munich 8.2% 6,580 Frankfurt 8.9% 4,300 10.9 Copenhagen NA 4,582 DK Aarhus NA 3,918 Odense NA 2,327 10.0 10 EE** 7DOOLQQ 0.0% 2,340 Madrid 4.0% 3,353 ES Barcelona 6.0% 4,008 Valencia 4.3% 1,982 Paris (inside) 15.6% 12,374 8.0 8.0 7.9 8 7.7 Lyon 5.0% 4,015 FR Marseille -2.0% 3,700 Ile de France 2.2% 4,838 Budapest 15.3% 1,480 HU Debrecen 11.2% 883 *\ēU -0.5% 947 6 5.8 5.5 5.4 Dublin 6.5% 4,519 5.3 IE Cork 12.6% 3,324 5.1 2,998 4.7 Galway 9.0% 4.4 7HO$YLY 16.6% 8,168 IL Jerusalem 2.4% 5,202 4 Haifa 21.3% 3,884 Milan 0.0% 3,613 IT Rome -1.7% 3,409 7XULQ -2.0% 1,992
LT** Vilnius 7.6% 1,775 2 LV** Riga NA 1,810 Amsterdam 11.9% 4,081 NL*** 7KH+DJXH 6.6% 2,089 Rotterdam 9.5% 1,963
:DUVDZ -1.5% 1,729 0 Krakow 0.0% 1,432 PL CZ UK IL FR HU SI PL IE Ζ7 $7 37 DK BE ES DE** NL*** ăµGļ -2.0% 1,071 :URFĄDZ -2.4% 1,387 Lisbon NA% 2,572 % Average transaction price of the 1,407 PT Porto*** NA% QHZGZHOOLQJȂ$QQXDOFKDQJH Algarve Region NA% 1,514 $YHUDJHWUDQVDFWLRQSULFHRIDbQHZGZHOOLQJ Ljubljana 6.4% 2,660 SI Maribor 0.0% 1,550 16,538 *Older dwellings Inner London -8.8% **Bid price UK Outer London -16.7% 7,145 ***New and older dwellings Manchester NA 3,035
Source: National Statistical$XWKRULWLHV'HORLWWHGDWDFDOFXODWLRQV 20 21 5(ȵH[LRQVPDJD]LQHLVVXH5(ȵH[LRQVPDJD]LQHLVVXH5(ȵH[LRQVPDJD]LQHLVVXH | Section title goes here 5(ȵH[LRQVPDJD]LQHLVVXH
7KHVWXG\DOVRFRYHUHGDQRWKHULPSRUWDQW Almost all developed countries are in indicator on the residential market, recent years facing low interest rates LQGHEWHGQHVVRIWKHKRXVLQJVWRFNLH environment, which in fact heavily the proportion of the volume of mortgage LQȵXHQFHVWKHUHVLGHQWLDOPDUNHW ORDQVWRKRXVHKROGGLVSRVDEOHLQFRPH 7KHUHIRUHPRUWJDJHUDWHVDUHVWLOOPRYLQJ 7KHORZHVWOHYHORILQGHEWHGQHVVDPRQJDOO DWWKHORZHVWOHYHOV&]HFK5HSXEOLFZDV surveying countries was found in Slovenia found to be the place where you could ZLWKSHUFHQWRIUHVLGHQWLDOGHEWWR get a mortgage with most favorable KRXVHKROGGLVSRVDEOHLQFRPH2QWKH FRQGLWLRQVRIEDQNȴQDQFLQJLQ7KH other hand, Netherlands, Denmark and DYHUDJHPRUWJDJHUDWHȵXFWXDWHGDURXQG United Kingdom had residential debt SHUFHQWΖQFRQWUDVWXQGRXEWHGO\ to household disposable income above WKHOHDVWDRUGDEOHPRUWJDJHȴQDQFLQJ SHUFHQW was recorded in Hungary with an average LQWHUHVWUDWHRISHUFHQW
7KHVWUXFWXUHDQGTXDOLW\ of the housing stock can generally be considered as one of the indicators of quality of life and regional GHYHORSPHQW
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The MLI and the share deal
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inherent / latent capital gains tax included RIUHDOHVWDWHȊ%ȋDUHDOORFDWHGWR&RXQWU\ Figure 1: Example double tax treaty 1 deployed by the OECD LQWKHHQWLW\LVDOVRPLOOLRQ$IWHUDOOWKH %6XFKWUHDWLHVLQFOXGHDFODXVHWKDWFRXOG tax authorities will ultimately be taxing the UHDG 2(&'VWDQGDUG Ȋ*DLQVGHULYHGE\D JDLQ+RZHYHULIWKHVKDUHVLQWKHHQWLW\DUH resident of Country A from the alienation for amending a multitude transferred the latent gain is not triggered RIVKDUHVGHULYLQJPRUHWKDQSHUFHQW for tax purposes, so no immediate cash of their value directly or indirectly from RXWȵRZRIPLOOLRQ5DWKHUWKHYDOXHRI immovable property situated in Country of bilateral tax treaties the shares is reduced by the amount of tax %PD\EHWD[HGLQ&RXQWU\%ȋ1RWHWKDWLW RQWKHODWHQWJDLQΖIWKHSURVSHFWLYHEX\HU is the aim and purpose of the tax treaty to does not plan to transfer the property, the avoid that Countries A and B would both LQȊRQHJRȋ WD[RQWKHJDLQZLOOEHGHIHUUHG:KHQWKH EHWD[LQJWKHVDPHSURȴW+HQFHWKHWUHDW\ time value of money is taken into account DLPVWRDYRLGGRXEOHWD[DWLRQ:KHUHWKH and following commercial negotiations, the tax treaty arranges for allocation of taxing market could value the deferred tax liability rights, the national laws of Country A and RIPLOOLRQDWȂVD\ȂSHUFHQWRILWV B will determine whether tax is actually QRPLQDOYDOXH PLOOLRQ$VDUHVXOWIRU OHYLHGRUQRW a share deal the net cash sales proceeds DUHPLOOLRQKLJKHUZKHQFRPSDUHGWRDQ DVVHWGHDO
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could have an entity in Country A, owning Could the MLI change the allocation of FKDQJHVPHQWLRQHGDERYH6XEVHTXHQWO\ If taxing rights are allocated to Country the shares in an entity in Country C, owning WD[LQJULJKWV" the choices of such country are compared A, and Country A is the Netherlands or UHDOHVWDWHLQ&RXQWU\%)RUFRXQWULHV ΖQSULQFLSOH\HV7KH0/ΖSURYLGHVFRXQWULHV to those of other countries and insofar Luxembourg, the gain is likely to be exempt Ȋ%ȋWREHDEOHWD[JDLQVRQWKHGLVSRVDORI ZLWKGLHUHQWRSWLRQVLQUHVSHFWRIWKH FKRLFHVȊPDWFKȋFKDQJHVZLOOEHLQFOXGHGLQ XQGHUWKHLUGRPHVWLFODZV7KHVHFRXQWULHV shares in the Country C entity, its domestic taxation gains on disposal of shares in WKHWD[WUHDWLHVIROORZLQJWKH0/Ζ and some others generally exempt gains law should allow for an extra territorial levy DUHDOHVWDWHHQWLW\:KHQORRNLQJDWWKH from share disposals from tax under their RIWD[)URPDFRQFHSWXDOSHUVSHFWLYHH[WUD MLI, it provides for the following possible 7KH2(&'NHHSVWUDFNRIWKHFKRLFHV SDUWLFLSDWLRQH[HPSWLRQUHJLPHV6XFK WHUULWRULDOOHY\RIWD[LVQRWVWUDLJKWIRUZDUG amendments to existing treaties: made by each of the countries in a kind regimes aim at avoiding double taxation So a situation could occur that domestic RIPDWFKLQJGDWDEDVH:KHQORRNLQJDW RIWKHVDPHSURȴWKHQFHWKHH[HPSWLRQ laws would allow taxation of the Country Other countries, however, may simply tax WKHFKRLFHVRIFHUWDLQ:HVWHUQ(XURSHDQ $HQWLW\LQWKHȴUVWH[DPSOHEXWZRXOG Introduce a real estate company article the gain or provide for a certain level of FRXQWULHVWKHUHGHȴQLWHO\DUHGLHUHQFHV not allow taxing the Country A entity for in treaties that currently do not include credit for the underlying tax in Country B Certain countries, like France, have real gains on disposal of shares in the entity in such article; estate company clauses in most existing DJDLQVWWKHWD[GXHLQ&RXQWU\$ &RXQWU\& Introduce a clause stating that the treaties and wish to extend these with article shall apply if the relevant value WKHDQWLDEXVHUXOHVDQGDERYH6SDLQ :KDWQHHGVWREHFRQVLGHUHGLVWKDWHYHQ In order to avoid double taxation and threshold is met at any time during has selected to replace existing clauses if taxing rights are allocated to Country B, to maximize returns for their investors, WKHGD\VSUHFHGLQJWKHDOLHQDWLRQ with a new clause covering all three items certain countries do not have the ability many real estate funds currently have set 7KHYDOXHWKUHVKROGLVWKHPLQLPXP PHQWLRQHGDERYHΖWDO\VHHPVWRKDYH to actually tax the Country A entity under up structures in which capital gains on percentage of real estate a company changed its position from not having real WKHLUGRPHVWLFODZV VHHȴJXUH disposal of shares in real estate companies directly or indirectly owns, generally HVWDWHFRPSDQ\FODXVHVWRȂVLPLODUWR 7KHGRPHVWLFODZVRIFHUWDLQFRXQWULHV are not taxed or are exempt in both VHWDWSHUFHQW6RWKHSHUFHQWDJH 6SDLQȂLQWURGXFLQJVXFKIXOOVFRSHFODXVH simply do provide for the possibility to levy &RXQWULHV$DQG%7KLVOHDYHVWKHZD\ &RXQWU\%UHDOHVWDWHLQWKHH[DPSOH FRXQWU\%WD[IURPWKH&RXQWU\$HQWLW\ΖI RSHQIRUDWD[HɝFLHQWH[LWRIDQDVVHWYLD Obviously for the market, the question is the entity owning the real estate is resident DVKDUHGHDO2EYLRXVO\WKHGHIHUUHGWD[ Introduce a clause stating that the whether real estate owners should take in a third country, the situation becomes liability on the inherent gain is not reduced article hall apply not only to shares DQ\DFWLRQ1RZWKDWDOOFRXQWULHVKDYH HYHQPRUHFRPSOLFDWHG:HIRULQVWDQFH DVDUHVXOWRIWKLVVWUXFWXULQJ LQHQWLWLHVEXWDOVRWRȊFRPSDUDEOH made their selections, this would probably LQWHUHVWVȋVXFKDVLQWHUHVWVLQD EHDJRRGWLPHWRSHUIRUPDȴUVWDQDO\VLVΖ partnership or trust (to the extent that could be assessed whether the changes to such shares or interests are not already WKHWD[WUHDW\ZRXOGFKDQJHSULRUȴQDQFLDO 7UDQVIHUULQJDQH[LVWLQJ FRYHUHG Country assumptions made at the time of the LQYHVWPHQW7KLVFRXOGYHU\ZHOOEHWKHFDVH Amendments 2 and 3 are more of an with certain countries electing to introduce structure often is considered DQWLDEXVHQDWXUH7KHGD\WLPHIUDPH A full scope real estate company clauses in aims at avoiding that changes to the WKHLUWUHDWLHVΖWFRXOGWKHQDOVREHFKHFNHG composition of the balance sheet shortly easier than transferring each ZKHWKHUȴQDQFLDOPRGHOOLQJSHUIRUPHG before an alienation of shares bring the Sale prior to the acquisition anticipated taxation percentage real estate below the applicable RIJDLQVRQGLVSRVDORIVKDUHVΖILWGLGWKH of shares LQGLYLGXDODVVHW WKUHVKROG7KHJDLQWKHQFRXOGQRWEHWD[HG answer to the question whether there is an LQ&RXQWU\%DWWKHPRPHQWRIDOLHQDWLRQ HHFWLYHLPSDFWFRXOGEHQR2WKHUZLVH Amendment 3 widens the range of entities Country ȴQDQFLDOSURMHFWLRQVPD\KDYHWREH WRZKLFKWKHDUWLFOHDSSOLHVΖWDLPVWRDYRLG updated or it could be considered whether that the article would not apply if interests ȂSULRUWRFKDQJHVEHFRPLQJHHFWLYHȂ C in a partnership or trust type entity owning certain changes to an investment structure WKHUHDOHVWDWHLQVWHDGRIȂVD\ȂDOLPLWHG DUHUHTXLUHG7KHFKRLFHVWKDWKDYHWR OLDELOLW\FRPSDQ\LVDOLHQDWHG be made in this respect that could also H[WHQGLQWRWKHZLGHUȊUHVSRQVLEOHWD[ȋ The MLI process in short discussion and the tax policy of funds 7KHSURFHVVIRUWUHDWLHVEHLQJDPHQGHG Country B and their managers, investors and other basically comes down to each individual VWDNHKROGHUV Real Estate country selecting what changes they ZRXOGOLNHWRPDNHWRWKHLUWUHDWLHV6R each country would state whether they Figure 2: Example double tax treaty 2 pursue (any combination of) the three
28 29 5(ȵH[LRQVPDJD]LQHLVVXH5(ȵH[LRQVPDJD]LQHLVVXH| Section title goes here 5(ȵH[LRQVPDJD]LQHLVVXH5(ȵH[LRQVPDJD]LQHLVVXH| Section title goes here Infrastructure in Australia
ΖQWKH&DVH\4XLUNE\'HORLWWHȊ6XUYLYDORIWKH)LWWHVWȋ Damien Frawley UHSRUWLWZDVVWDWHGWKDWHHFWLYHDVVHWPDQDJHUVZLOO 'DPLHQKDVRYHU\HDUVȇH[SHULHQFHLQWKHȴQDQFLDOVHUYLFHVVHFWRU He has a strong focus on developing and executing strategy, particularly KDYHWRGLHUHQWLDWHLQYHVWPHQWVZLWKDEURDGHUDUUD\ around growth and sales. Most recently, Damien was the country head of BlackRock Australia, responsible for managing $45 billion of assets on of active capabilities and strong product development behalf of clients. Prior to this, Damien was BlackRock’s Head of Account SURFHVVHV:LWKWKDWLQPLQG1HLO%URZQ3DUWQHULQ 0DQDJHPHQWRYHUVHHLQJVDOHVPDUNHWLQJDQGSURGXFWHRUWVDFURVV institutional and retail channels. Damien’s career has also included roles Assurance & Advisory at Deloitte, has spoken to Damien at Merrill Lynch Investment Management, Barclays Global Investors and Citibank. On a personal note, Damien is a Queenslander and prior to his Frawley from QIC, which is well known for its global FDUHHULQȴQDQFLDOVHUYLFHVKHUHSUHVHQWHG$XVWUDOLDLQUXJE\XQLRQ GLYHUVLȴHGDOWHUQDWLYHVEXVLQHVVEXLOGLQJRQFXUUHQWDQG IXWXUHRSSRUWXQLWLHVLQLQIUDVWUXFWXUHLQYHVWLQJ
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7KHFRPSHWLWLRQIRUTXDOLW\ infrastructure assets can be intense, and SULFHVUHȵHFWWKDWIDFW:KDWTXDOLWLHVGR LQIUDVWUXFWXUHDVVHWVRHUDQGZKDWLV 4Ζ&ȇVDSSURDFKWRHQVXULQJLWLVFUHDWLQJ ORQJWHUPYDOXHIRULQYHVWRUV" Infrastructure assets have a number of desirable qualities, including a long-term LQYHVWPHQWKRUL]RQLQFUHDVHGFDVKȵRZ predictability where the asset operates in a monopolistic environment like a seaport or airport, revenues with direct or indirect LQȵDWLRQOLQNDJHUHODWLYHO\WUDQVSDUHQWOHJDO and regulatory frameworks, and upside SRWHQWLDODRUGHGWKURXJKLQFUHDVHGGHPDQG RUH[SDQVLRQRSWLRQDOLW\
Unlisted infrastructure assets, one of QIC’s core focus areas, typically possess DGGLWLRQDODWWUDFWLYHIHDWXUHV7KHVHFDQ include reduced correlation to listed equity markets, which is important for portfolio GLYHUVLȴFDWLRQDQGTXLWHRIWHQWKHDELOLW\WR have direct governance rights at the asset OHYHO7KLVSURYLGHVDQHQKDQFHGDELOLW\ WRGLUHFWO\LQȵXHQFHWKHVWUDWHJ\DQGULVN appetite applied to the asset, thus better DOLJQLQJRXUVHOYHVZLWKSRUWIROLRREMHFWLYHV :KLOHQRWLQJWKDWWKHVHEHQHȴWVFDQFRPH at the expense of reduced liquidity, it is unsurprising that the popularity of unlisted Deloitte: What is your view of infrastructure as an asset class continues to LQIUDVWUXFWXUHLQYHVWPHQWLQ$XVWUDOLD" In February 2017, Infrastructure JURZ7KLVVHHPVSDUWLFXODUO\ORJLFDOZKHQZH Over the past two decades, Australia has FRQVLGHUUHODWLYHWUDFNUHFRUG)RUH[DPSOHLQ become a global leader in infrastructure an Australian context, MSCI data shows that LQYHVWPHQW7KHVWUHQJWKRIWKHLQIUDVWUXFWXUH $XVWUDOLDLGHQWLȴHG unlisted infrastructure has outperformed class in Australia has been particularly equities, bonds, and property in delivering an aided by institutional investors’ willingness average return greater than 13 percent per to diversify portfolio exposure away approximately AU$60 billion DQQXPRYHUWKHSDVW\HDUV from traditional global equity and debt FDSLWDOPDUNHWV*LYHQWKDWRXUQDWLRQȇV in high-priority and priority Clearly, increased investor appetite brings superannuation system has created a large greater competition in what can be a savings pool, over AU$2 trillion within the last sparsely populated universe of prospective \HDUV$XVWUDOLDQRZȴQGVLWVHOILQDQLGHDO SURMHFWVRYHUWKHQH[W\HDUV LQIUDVWUXFWXUHDVVHWV4Ζ&LVIRFXVHGRQ position to investigate alternative investment being highly selective and disciplined in our VROXWLRQV DSSURDFK:HSULRULWL]HWKHRSSRUWXQLWLHV where there is enhanced scope for achieving 7KURXJKLQYHVWLQJLQLQIUDVWUXFWXUH UHODWLYHYDOXHIRURXUFOLHQWV institutional investors have been able to constructively work with all levels of In addition to this, we also seek to prioritize JRYHUQPHQW7KLVKDVOHGWRWKHFUHDWLRQRI opportunities of a bilateral or less competitive numerous partnerships which have delivered nature to the extent that we pursue outcomes that have had positive knock-on LQYHVWPHQWVWKURXJKDFRPSHWLWLYHSURFHVV HHFWVIRUYDULRXVSDUWLHVLQFOXGLQJORFDO residents, communities, businesses, and LQYHVWRUV
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:KHQVHOHFWLQJJOREDOPDUNHWVLQZKLFK :KDWTXDOLWLHVPDNH$XVWUDOLDRQHRIWKH to invest, what key characteristics do you JOREDOOHDGHUVLQLQIUDVWUXFWXUH" UHTXLUH" :HEHOLHYHWKHUHDUHDEXQGDQWIDFWRUV From a geographic perspective, QIC typically that contribute to the nation being one focuses on infrastructure investments in RIWKHJOREDOOHDGHUVLQLQIUDVWUXFWXUH 2(&'FRXQWULHV7KLVLVPDLQO\EHFDXVHRIWKH Firstly, Australia was a pioneer of facilitating relatively well-established and transparent SULYDWHLQYHVWPHQWLQSXEOLFLQIUDVWUXFWXUH OHJDOUHJXODWRU\DQGHFRQRPLFVWUXFWXUHV 7KLVPHDQVWKDWWKH$XVWUDOLDQPDUNHWLV :HVWURQJO\EHOLHYHLQWKHPHULWVRISRUWIROLR mature and well-accustomed to the sorts of GLYHUVLȴFDWLRQVRZHDFWLYHO\VHHNRXW transactions, structures, and models that LQYHVWPHQWVDFURVVPXOWLSOHMXULVGLFWLRQV FDQEHHPSOR\HGΖWDOVRDOORZVWKHPDUNHW WRWDLORULQQRYDWLYHVROXWLRQVWRVSHFLȴF More importantly, we also look to unpick VLWXDWLRQV6HFRQGO\$XVWUDOLDKDVWKHVDPH the underlying macroeconomic drivers and level of legal stability as other OECD countries RWKHUDVVHWVSHFLȴFIDFWRUVUHODWLQJWRHDFK but boasts relatively favorable demographics RSSRUWXQLW\IURPWKHRXWVHW7KLVSURFHVV and a macroeconomic outlook at the upper allows us to proactively assess portfolio HQGRIDOO2(&'PHPEHUVWDWHV7KLVLV ȴWDQGFOLHQWVXLWDELOLW\WKURXJKULJRURXV particularly aided by Australia’s advantageous HFRQRPLFVFHQDULRDQDO\VHV7KLVLQFOXGHVD proximity to Asia, given the expected growth correlation analysis with the existing assets of SRWHQWLDOLQWKLVUHJLRQ7KLUGO\$XVWUDOLDLV WKHFOLHQWVLQTXHVWLRQ a large country, meaning its infrastructure QHHGVDQGUHTXLUHPHQWVDUHH[WHQVLYH In February 2017, Infrastructure Australia LGHQWLȴHGDSSUR[LPDWHO\$8ELOOLRQLQKLJK priority and priority projects over the next \HDUV7KHVHSURMHFWVSURYLGHDUHDVRQDEOH pipeline of opportunities for the private Australia has the same level of legal sector to become involved either directly or indirectly through schemes like the Federal stability as other OECD countries but *RYHUQPHQWȇV$VVHW5HF\FOLQJΖQLWLDWLYH7KLV What opportunities do you believe recent :KLOHOLPLWHGGHWDLOVKDYHEHHQSURYLGHGWR LQLWLDWLYHHQFRXUDJHGEURZQȴHOGDVVHWVWR JRYHUQPHQWLQIUDVWUXFWXUHSODQVVXFKDV GDWH3UHVLGHQW7UXPSȇVLQIUDVWUXFWXUHSODQ Any plans by boasts relatively favorable demographics be sold or leased to generate funds for new WKRVHVHHQLQWKH86ZLOORHULQYHVWRUV" represents a potential catalyst to revitalize US LQIUDVWUXFWXUHLQYHVWPHQW :KHQGHVLJQHGDQGLPSOHPHQWHGHHFWLYHO\ infrastructure through partnering with the governments and a macroeconomic outlook at the )XUWKHUDȴHOG4Ζ&KDVSUHYLRXVO\LQYHVWHG infrastructure can drive economic growth SULYDWHVHFWRU5HFHQWPDUNHWFRPPHQWDU\ in infrastructure assets in emerging markets in communities and improve quality of suggests as much as US$200 billion could be to facilitate new XSSHUHQGRIDOO2(&'PHPEHUVWDWHV VXFKDVΖQGLD:HFRQWLQXHWRVHOHFWLYHO\ OLIH$Q\SODQVE\JRYHUQPHQWVWRIDFLOLWDWH VRXJKWIURPWKHSULYDWHVHFWRU6KRXOGWKLV assess opportunities as they arise and to the new infrastructure or sponsor upgrades of FRPHWRSDVVLWZRXOGUHSUHVHQWDVLJQLȴFDQW infrastructure or H[WHQWRXUFOLHQWVKDYHDSSHWLWHΖQYHVWLQJ H[LVWLQJDVVHWVVKRXOGEHDSSODXGHG*LYHQ opportunity for parties such as QIC to invest 7KLVLVSDUWLFXODUO\DLGHGE\$XVWUDOLDȇV JRYHUQPHQWVȇLQFUHDVLQJȴVFDOFRQVWUDLQWVLW in critical infrastructure in the world’s biggest in such jurisdictions does not come without sponsor upgrades FKDOOHQJHV+RZHYHUDVDQRUJDQL]DWLRQ follows that there should be increased scope HFRQRP\0RUHLPSRUWDQWO\LWLVSOHDVLQJWR advantageous proximity to Asia given the we recognize and appreciate the long-term for parties such as QIC to actively partner see growing recognition of the private sector’s opportunities within these markets, further with governments to reduce their funding ability to deliver and manage infrastructure of existing H[SHFWHGJURZWKSRWHQWLDOLQWKLVUHJLRQ the importance of forging value-adding JDS7KLVFDQEHDFKLHYHGWKURXJKDSULYDWH PRUHHɝFLHQWO\WKURXJKEHWWHUSURFXUHPHQW UHODWLRQVKLSVZLWKORFDODQGDOLJQHGSDUWQHUV deployment of funds in attractive economic methods, market discipline, and a long-term assets should be Making sure these relationships are cemented LQIUDVWUXFWXUHRSSRUWXQLWLHV focus on optimizing the asset management well ahead of time puts us in prime position OLIHF\FOH DSSODXGHG IRUDSURVSHURXVDQGVWDEOHIXWXUH :LWKUHVSHFWWRWKH86LWLVFOHDUWKDWWKHUH has been an underinvestment of investment From QIC’s perspective, we are actively LQFULWLFDOLQIUDVWUXFWXUH:LWKHVWLPDWHVRI assessing the sectors and regions most likely the funding gap required to bring America’s WREHQHȴWIURPWKLVSRWHQWLDOSROLF\VKLIW infrastructure to a state of good repair DQGLQFUHDVHGDFWLYLW\OHYHOV$VDORQJWHUP potentially running into the trillions of dollars, infrastructure owner, we will be looking to it is obvious that private funding will be work with governments at all levels on the HVVHQWLDO+RZHYHULWLVLPSRUWDQWWRQRWH best way for the private sector to deliver that previous attempts to modernize the value for money and bring innovation to P3s procurement and funding of infrastructure (Public Private Partnerships) and asset-recycling within the US have been slow and SURJUDPVΖQSDUWLFXODUZHZLOOEHDEOHWR LQFRQVLVWHQWZLWKVRPHKLJKSURȴOHSURFHVV RHUDZHDOWKRIH[SHULHQFHGUDZLQJRQ failures such as Chicago Midway International QIC’s key involvement in leasing assets from $LUSRUWFRQWULEXWLQJWRLQYHVWRUFDXWLRQ governments and institutions within Australia and abroad, such as the Port of Melbourne, Brisbane Airport, and the parking system at 2KLR6WDWH8QLYHUVLW\
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Recent thought leadership
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Property Index – Overview of European Residential Markets 5HQWDOPDUNHWȂΖVUHQWLQJDGZHOOLQJDSURȴWDEOHLQYHVWPHQW" 6th edition, July 2017 7KHVL[WKHGLWLRQRIWKHDQQXDO'HORLWWH3URSHUW\ΖQGH[FRPSDUHV WKHUHVLGHQWLDOSURSHUW\PDUNHWVLQ(XURSH7KHUHSRUWDQDO\VHVWKH IDFWRUVWKDWLQȵXHQFHWKHGHYHORSPHQWRIUHVLGHQWLDOPDUNHWVDQG FRPSDUHVSULFHVLQDQXPEHURI(XURSHDQFRXQWULHVDQGFLWLHV http://deloi.tt/2gPzfOd
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&RPPHUFLDO5HDO(VWDWH2XWORRN Our 2018 Commercial Real Estate Outlook examines the disruptions DQGLQQRYDWLRQVEHKLQGWKHHYROYLQJLQGXVWU\G\QDPLFV0RVW importantly, it outlines four areas that companies can prioritize to PD[LPL]HYDOXHDQGJURZWKDPLGDFKDOOHQJLQJEXVLQHVVFOLPDWH http://deloi.tt/2zbSgEi 2018 Real Estate Outlook Optimize opportunities in an ever-changing environment
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Contacts
Austria Germany Middle East 6ZLW]HUODQG
Alexander Hohendanner Michael Müller Robin Williamson .DUO)UDQN0HLQ]HU Partner Partner Managing Director Partner +49 892 903 684 28 +966 1 288 86 00 DKRKHQGDQQHU#GHORLWWHDW PPXHOOHU#GHORLWWHGH UZLOOLDPVRQ#GHORLWWHFRP NPHLQ]HU#GHORLWWHFRP
%HOJLXP -¸UJYRQ'LWIXUWK Netherlands Partner 8QLWHG.LQJGRP Frédéric Sohet +49 211 877 241 60 Jef Holland David Brown Partner MYRQGLWIXUWK#GHORLWWHGH Partner Partner +31 882 881 991 IVRKHW#GHORLWWHFRP Christof Stadter MKROODQG#GHORLWWHQO Partner GHEURZQ#GHORLWWHFRXN -HDQ3DXO/RR]HQ +49 89 29036 8269 3DXO0HXOHQEHUJ 1LJHO6KLOWRQ Partner FVWDGWHU#GHORLWWHGH Partner Partner +32 2 639 4940 +31 88 2881 982 +44 20 7007 7934 MORR]HQ#GHORLWWHFRP Greece SPHXOHQEHUJ#GHORLWWHQO QVKLOWRQ#GHORLWWHFRXN Central Europe Michael Hadjipavlou Norway Partner Siobhan Godley Partner 'LDQD5£GO5RJHURY£ +30 210 67 81 100 7KRUYDOG1\TXLVW Partner PKDGMLSDYORX#GHORLWWHJU Partner VJRGOH\#GHORLWWHFRXN +420 603 809 719 GURJHURYD#GHORLWWHFHFRP Ireland WQ\TXLVW#GHORLWWHQR US Michal Melc Michael Flynn 6WLJΖQJYH%MRUNHQ 5REHUW2ȇ%ULHQ Senior Manager Partner Partner Partner - Global Real Estate +420 603 809 719 Sector Leader PPHOF#GHORLWWHFHFRP PLFȵ\QQ#GHORLWWHLH VEMRUNHQ#GHORLWWHQR +1 312 486 2717 UREULHQ#GHORLWWHFRP CIS Brian Jackson 3RUWXJDO Partner 6WHYH2SHQVKDZ -RUJH0DUU¥R Canada Partner EULMDFNVRQ#GHORLWWHLH Partner Ciro DeCiantis Partner VRSHQVKDZ#GHORLWWHUX Italy MPDUUDR#GHORLWWHSW +1 416-601-6237 FGHFLDQWLV#GHORLWWHFD Denmark Elena Vistarini South Africa Partner 6KHLOD%RWWLQJ Lars Kronow Patrick Kleb Partner Partner HYLVWDULQL#GHORLWWHLW Partner +1 416-601-4686 +27 828 208 363 VERWWLQJ#GHORLWWHFD ONURQRZ#GHORLWWHGN Claudio Tierno SNOHE#GHORLWWHFR]D Partner $QWKRQ\&RFX]]R 7LQXV%DQJ&KULVWHQVHQ Spain Partner FWLHUQR#GHORLWWHLW Partner 1-416-601-6432 Javier Parada Pardo DFRFX]]R#GHORLWWHFD WEFKULVWHQVHQ#GHORLWWHGN /X[HPERXUJ Partner +349 143 818 06 Finland Benjamin Lam MDSDUDGD#GHORLWWHHV Partner Jan Söderholm Alberto Valls Partner EODP#GHORLWWHOX Partner +349 143 811 26 MDQVRGHUKROP#GHORLWWHȴ /L]H*ULɝWKV DYDOOV#GHORLWWHHV Partner France Sweden OL]JULɝWKV#GHORLWWHOX /DXUH6LOYHVWUH6LD] 0DJQXV/DUVVRQ Partner Pierre Masset Partner Partner +46 733 97 73 17 OVLOYHVWUHVLD]#GHORLWWHIU PDJODUVVRQ#GHORLWWHVH SPDVVHW#GHORLWWHOX Jean Csuka Partner Basil Sommerfeld Partner MFVXND#GHORLWWHIU EVRPPHUIHOG#GHORLWWHOX Sylvain Giraud Partner VJLUDXG#GHORLWWHIU
38 39 Contacts
5REHUW2ȇ%ULHQ Partner - Global Real Estate Sector Leader Please do not hesitate to +1 312 486 2717 UREULHQ#GHORLWWHFRP contact your relevant country Javier Parada Pardo Partner - EMEA Real Estate Leader experts listed in the magazine +34 914 381 806 MDSDUDGD#GHORLWWHHV
Benjamin Lam Partner - EMEA Real Estate Funds Co-Leader EODP#GHORLWWHOX
David Brown Partner - EMEA Real Estate Funds Co-Leader GHEURZQ#GHORLWWHXN
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