Jersey: The Global Outlook For Jersey Private Equity Real Estate

Jersey has a long-standing and enviable reputation as a leading and well-regulated offshore financial centre, particularly for those establishing private equity real estate funds and other real estate investment structures. In considering recent trends in the Private Equity Real Estate (PERE) sector, it is worth focusing on why Jersey continues to be the destination of choice for international investors and PERE fund managers as a platform for international real estate investment.

REAL ESTATE MARKET OVERVIEW

As an international crossroads for cross-border investment, Jersey has direct visibility on the international real estate markets.

Since the financial crisis the continued low interest rate environment and the background of quantitative easing, has prompted a search for real investment returns. Post-crisis opportunities (arising from deleveraging and initial risk aversion) and the cyclical nature of real estate markets, have drawn opportunistic and value-add players into the real estate markets. As economic stability has increased and risk appetite from investors and institutions has grown, a broader pool of investors have been drawn back to real estate as an asset - with its relative safe haven and inflation-proofing characteristics.

In recent years, a number of private equity and hedge funds have established real estate investment platforms to diversify into the real estate sector, taking full advantage of the distressed sale of real estate portfolios or loans. Following swiftly on their heels has followed an abundance of capital from sovereign wealth funds, pension funds, institutional investors, family offices and high-net worth investors, mainly from the US, Middle East and Asia. The re-emergence of the availability of debt finance has further contributed to an increased demand for, and competitive pricing of, core real estate.

Large portfolio real estate transactions have been common, principally driven by demand from overseas investors, and 'trophy' buildings have been in demand (and consequently in increasingly short supply at attractive pricing levels).

An increasingly broad group of fund managers and investors have latterly been searching for opportunistic or value-add investments in the regions and the secondary cities in the UK, and more further afield, across Europe and more globally, including in the US and the Asian markets.

In terms of sectors, as well as offices and retail investments, fund managers have also focused on the industrial and logistics, hotel and leisure, and student accommodation sectors. Infrastructure funds have also been active.

PERE FUNDS

In 2015, closed-ended PERE funds raised $107 billion globally, according to Preqin statistics. North American focused funds led the way, raising $71 billion (67%), with European focused funds raising $23 billion (21%) and Asia focused funds raising US$11 billion (11%). Blackstone Real Estate Partners VIII alone raised a staggering $15.8 billion.

In the UK, commercial property investment levels were anticipated to exceed £70 billion by the end of 2015. In the first three quarters, nearly £50 billion of transactions had been completed. Nearly 50% of this capital for that period, £24.2 billion, originated from overseas investors (www.practicallaw.com).

In Jersey, according to statistics from the Jersey Financial Services Commission (JFSC), as at 30 September 2015, the net asset value of all alternative funds administered in Jersey grew by 12% year-on-year to £159 billion, which includes rises of 2% in private equity and 16% in real estate funds. In addition, around 230 specialist real estate funds are regulated by the JFSC, with a total net asset value of £35 billion.

REGULATORY AND TAX CHALLENGES

Despite many regulatory complexities facing the funds sector, including the European Union's Alternative Investment Fund Managers Directive (AIFMD) regime, US and UK Foreign Account Tax Compliance Act (and the Common Reporting Standard) and the intricacies of the OECD's Base Erosion and Profit Shifting (BEPS) initiative, PERE fund establishment activity remains buoyant and continues to grow at a strong rate.

The JFSC and Jersey's funds industry has been able to respond quickly, and to proactively adapt, to the international regulatory environments. Jersey, being outside the EU, offers a flexible regulatory regime which allows PERE funds and their fund managers to choose, if raising capital in the EU, to achieve an attractive balance between regulation (and the attendant compliance costs) and market access through the National Private Placement Regimes (NPPRs), or to sign up to full AIFMD compliance. For those focused on non-EU capital, or undertaking joint venture or proprietary investment structures, the option is there to remain outside of the AIFMD regime.

In 2015, according to JFSC statistics, there were 104 Jersey authorised alternative fund managers marketing, and 230 alternative investment funds being marketed into the EU through the NPPRs. Looking ahead, the European Securities and Markets Authority (ESMA) recommended that Jersey should be considered for EUwide passporting, which is a vote of confidence in Jersey's regulatory and fiscally transparent framework and augurs well for continued access to EU capital in the future.

A key focus for AIFMD and BEPS is the question of substance. An important factor in the success of Jersey's funds industry is the ability to have real substance in respect of funds and other structures managed and administered in Jersey. The depth and expertise within Jersey's financial services industry, particularly in respect of corporate governance (with a strong community of non-executive directors) is a significant factor in this success, ably supported by Jersey fund management and administration service providers, who have the necessary specialist expertise and personnel who really know and understand the PERE asset class.

JERSEY FUNDS WORK

Jersey provides a stable, well-regulated and internationally-recognised environment, providing a tax neutral platform for investment by PERE funds in real estate and is the destination of choice for investments into UK and pan-European markets.

Real estate structuring activity and transaction levels in Jersey have been high, particularly in relation to investments in the UK and Europe. In 2015, there were some notable 'trophy' building transactions in London and certain prime cities in Europe and a number of billion or multi million pound transactions in relation to same assets portfolio or diversified portfolio sales, including real estate in the office, logistic, hotels and student accommodation sector in the UK and pan- Europe.

A wide variety of the PERE fund structures are able to be established in Jersey, including private/joint venture funds, syndicated or 'club' fund structures, collective investment funds, listed REITs and fund of funds.

Apart from the traditional limited partnership PERE funds focusing on office, retail or industrial sectors in the UK or across the EU, there has been a growth in pan-European or global debt funds, infrastructure funds and global student accommodation funds, as fund managers look for value-add investments in different geographical areas.

Development activity has increased as funding became more readily available. A number of transactions have involved structuring 'developer and funder' joint ventures for large scale developments and regeneration projects. Existing investors have also sold interests in development projects, which have been acquired by overseas institutions or pension funds.

With the influx of Middle Eastern and Asian capital, the Jersey funds industry has adapted to offer innovative Shari'a-compliant fund and joint venture fund structures, principally UK and EU-focused. The postcrisis trend away from blind pool fund arrangements and the desire from institutional, sovereign wealth and family office investors to have closer involvement with the investment process, has led to an increased number of joint venture and club investment arrangements. It has also seen the emergence of certain 'hybrid' fund structures allowing investor discretion in respect of individual investments – for example funds which are structured as segregated cell companies offering investors segregation of assets and liabilities between cells and the ability to choose in which cell they wish to invest.

Certain joint venture funds have been converted into Real Estate Investment Trusts (REITs) and listed on the Channel Islands Stock Exchange (CISE), being an attractive option for investors wishing to enjoy the benefits of REIT status but not necessarily requiring liquidity or wishing to incur the costs associated with, for example, a London listing. Although a REIT must be UK tax resident, there is no restriction on the place of incorporation and Jersey companies are being chosen as the REIT vehicle.

There has also been a growth in the PERE secondary funds market, where funds have focused on acquiring interests in other real estate or debt funds which provides a certain amount of liquidity to investors. Global 'tactical' funds have also focused on acquiring established property companies including taking private listed property companies with a view to consolidation and subsequent exit.

In relation to debt funds, whilst the cost of finance remains low and loan-to-value ratios are relatively conservative, as a consequence there are a number of debt-focused PERE and hedge funds that focus on 'gap' funding opportunities by offering stretch senior or mezzanine finance over and above the bank's senior debt LTV levels.

CONCLUSION

Jersey represents a stable, well-regulated and internationally-recognised environment for international capital flows, providing a tax neutral platform for investment by PERE funds in real estate, and is the destination of choice for investments into UK and pan-European markets.

The depth of expertise and experience in Jersey of cross border investment structuring – and the real estate sector – and Jersey's engagement with and ability to meet international standards of governance and compliance, means that Jersey should be well placed to continue its role in the effective and efficient allocation of international capital into the real estate sector for many years to come.

Previously published in Jersey-First for Finance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Bedell Cristin
Jersey Finance Limited
Hatstone Lawyers
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Bedell Cristin
Jersey Finance Limited
Hatstone Lawyers
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions