Welcome to the latest edition of MoFoReal, our newsletter highlighting recent activities and other developments from MoFo’s European real estate team. In this edition, we examine the impact of the war in Ukraine on the European commercial property market as well as the new transparency measures introduced by the UK government in response to the conflict.
As always, we hope you enjoy reading MoFoReal and welcome your comments and suggestions for future issues.
Real estate and the war in Europe
By: Luisa Farmer, Partner, London
Looking back on the last quarter, it’s hard to ignore the ongoing war in Ukraine, another event with global repercussions.
While it was great to see so many familiar faces at MIPIM – and to enjoy a bit of social normalcy – there were frequent reminders of the continuing challenges presented by the pandemic and the unfolding invasion of the other mainland side. Unsurprisingly, discussions have often turned to the impact of the war on the European property market.
Investment and rental activity generally remains strong. On the investment side, this is likely due in part to cash reserves or “dry powder” accumulated by debt and equity investors, and also due to inflationary pressures that are prompting investors to turn to real estate. given its potential for hedging against inflation. We addressed these points in our last newsletter in relation to our market performance projections, but we now expect to see activity shift from Central Europe to more established markets, such as London, Paris and Switzerland. , due to perceived lower risks. in these areas.
That said, the picture is still uncertain. Soaring inflation and supply chain issues are putting significant pressure on key stakeholders as development costs and interest rates rise. As costs rise across the board, tenants (whether commercial or residential) are likely to be extremely resistant to rent increases, which will inevitably affect returns for investors as well. Moreover, the longer the conflict in Ukraine drags on, the more unstable European economy and market sentiment will become – and currently most reports suggest that the war is not likely to end any time soon. Thus, real estate market trends will continue to develop.
New transparency measures
What is certain is that events in Ukraine have reinvigorated the UK government’s desire to ensure that ‘dirty money’ has nowhere to hide in the UK. Therefore, the Economic Crimes (Transparency and Enforcement) Act 2022 (the “ECA”) was fast-tracked by the UK Parliament and signed into law on March 15, 2022.
The ECA contains penalty provisions and, specifically for the commercial property sector, enhanced transparency measures for foreign entities holding property in the UK. In particular, the CEC introduces a imperative duty to register the beneficial owners of all such foreign entities at the UK Companies Registry, Companies House (the “Register”). The ECA also imposes a permanent obligation update or confirm register information every twelve months, similar to the existing requirement for UK companies to file confirmation statements with Companies House.
Note that these requirements will affect all non-UK entities holding property in the UK, not just those that may have a connection to sanctioned jurisdictions or traditional tax havens. As most of our clients are international investors in one form or another, and often employ structures in which a non-UK entity owns the underlying property, this new requirement will require a response from most of them.
We do not yet know when the registration obligation will come into force but, when it does, there will be a six-month compliance window. Once this window has elapsed, registration failure could result in criminal penalties (both for the foreign entity itself and for its managers) as well as restrictions on buying, selling and/or mortgaging property. Given these potentially significant consequences and the time required to apply the new rules to complex holding structures (eg Jersey Property Unit Trusts (JPUT)), we recommend that you analyze your portfolios as soon as possible.
You can find more information about the ECA and the registry in our recent client alert.
MoFo supports Ukrainian refugees
In Europe, our charitable giving programs support habitat for humanityefforts to provide temporary shelter to families of Ukrainian refugees.
If you would like to donate, please use one of these links:
Highlights of recent transactions
In Q1 2022, MoFo’s European Property Group was pleased to advise:
- Patron Capital VI, LP in its joint venture to acquire and reclaim a 42-acre waterfront site at Daedalus, Lee-on-the-Solent. In partnership with Daedalus Development Company, owned by specialist development managers MurrayTwohig Development and Orwell Real Estate, the new joint venture exchanged contracts to acquire the site in phases from Homes England. Its ambitious development proposes to deliver a mixed industrial and residential program with additional leisure uses intended to revitalize the local community and restore historic assets.
- A multinational banking corporation as a lender under a c. £110million loan to finance the development of a data center in London.
- Patron Capital VI, LP in connection with the acquisition of Wishford Schools Group, in partnership with CEO and Founder, Sam Antrobus. Wishford owns and operates a portfolio of private schools in the south of England.
- Mirastar Real Estate Investment Management Limited on its new mandate to act as a specialist asset and development manager help develop and manage a new portfolio of logistics investments to a core-plus real estate investment fund managed by KKR. The appointment was finalized in March 2022 and Mirastar’s first UK acquisition under the new mandate, Harlow Icon Park in Essex, was announced in April 2022.
- Long-time client of MARK for the English law aspects of the refinancing of a number of European assets in Amsterdam, Milan and Paris.
 The LCE provides that the regulation will fix the date of entry into force of the register. At the time of writing, the regulations have not yet been published.[View source.]