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Page 2 Real estate niche workshop
Agenda
9:00 a.m. Panel 1: Competitive positioning of Luxembourg for offshore funds
Moderated by:
► Michael Hornsby, EMEIA Real Estate Funds Leader, EY Luxembourg
► Bruno Di Bartoloméo, Partner, Real Estate, EY Luxembourg
Guest speakers:
► Christopher Bennett, Director, Head of Real Estate, Crestbridge S.A.
► Patrick Steinhauser, Legal Counsel, Lone Star Capital Investments S.à r.l.
► Kenneth Macrae, Managing Director, Hines Luxembourg S.à r.l.
► Johan Terblanche, Partner, Dechert LLP
9:45 a.m. Keynote speech on 2014 Global Market Outlook - Trends in Real Estate
Private Equity
Presented by Mark Grinis, Global Real Estate Fund Leader, EY New York
10:15 a.m. Coffee break
Page 3 Real estate niche workshop
Agenda (cont’d)
10:30 a.m. Panel 2: Does Luxembourg need a REIT regime?
Moderated by:
► Dietmar Klos, Partner, Head of Financial Services Tax, EY Luxembourg
► Mathieu Volckrick, Executive Director, Regulatory Services Leader, EY
Luxembourg
Guest speakers:
► Keith Burman, Partner, ManagementPlus (Luxembourg) S.A.
► Patrick Reuter, Partner, Elvinger, Hoss & Prussen
11:15 a.m Panel 3: Fund distribution and capital raising
Moderated by:
► Kai Braun, Executive Director, Alternatives Advisory Leader, EY Luxembourg
► Rafael Aguilera, Executive Director, Advisory Services, EY Luxembourg
Guest speakers:
► Marnix Arickx, CEO, BNP Paribas Investment Partners Belgium
► Rudolf Kömen, Head of Luxembourg based global fund product platform, Credit
Suisse
12:00 p.m. Wrap-up by Michael Hornsby
12:15 p.m. Networking lunch
Page 4 Real estate niche workshop
Panel 1 - Competitive positioning of Luxembourg for offshore funds
Page 5 Real estate niche workshop
Authorized AIFMs
► Luxembourg (CSSF as at July 2014)
► 151 authorized AIFMs
► Multi-managers (group): 15
► Real estate managers only: 19
► Independent (3rd party) managers: 87
► Undetermined: 30
► France (as at 1 September 2014)
► 268 authorized AIFMs
► Ireland (as at July 2014)
► 57 authorized AIFMs
► UK (as at August 2014)
► 706 authorized AIFMs
CSSF, INREV and ESMA updates for July - September 2014
Page 6 Real estate niche workshop
Options for non-European managers wishing to access capital from European investors going forward
1. No longer market funds to European investors
2. Stay offshore with no active marketing in Europe (reverse solicitation)
3. Establish a European Feeder fund
4. Raise money from European investors through segregated accounts
5. Stay offshore in the mid-term, comply with transparency provisions
and access selected investors through remaining private placement
regimes
6. Stay offshore and seek AIFM equivalence for the non-EU manager
7. Set up on-shore entry point for EU investors for a global co-
investment platform
Page 7 Real estate niche workshop
Integrating AIFM into a global platform Global Model
Manager
Level US GP
Fund level
Asset level
Investment Advisor
EU AIFM US/Cayman GP
Investor
Level
SPV SPV SPV
SPV
SPV SPV
SPV
SPV
SPV
SPV SPV
Board
members A B C A D E A F G
GP/Decision
taker/Substance
Local series of
funds for 3
different investor
groups (ring-
fencing)
Asset
management
Investor Level
…
Local Governance
Administration
Transfer Agency
Depository control
Valuation
Marketing /
Placement agent
Global continuity
with local expertise
SPV
Delaware
Fund 3 Lux SIF 4
Cayman
Fund 3
EU investors US investors Asian / other
investors
Page 8 Real estate niche workshop
1. Create an attractive REIT regime
2. Promoter use of non-regulated AIF regime solely regulated through AIFMD
compliant Manager
3. Punctual improvements in SIF and SICAR regulatory practice
4. Create industry leading technical dialogue platform
5. Achieve positive reputation/market perception in terms of offering the most
efficient and quickest process for authorizing/ registering AIF/ AIFM
6. Enhance the attractiveness towards non-EU AIFMs choosing Luxembourg as
Member State of Reference
7. Resolve remaining taxation issues related to SCS/SCSp
8. Expand / update tax treaty network
9. Address BEPS concerns
Ideas for enhancing Luxembourg’s attractiveness
Page 9 Real estate niche workshop
10. Change the industry’s perception in terms of considering Luxembourg as cost
efficient location
11. Creation of Management company/ Conducting Officer forum
12. Improve Carried Interest Regime
13. Expand “risk management” expertise in Luxembourg
14. Enhance Luxembourg’s reputation as an effective but efficient center for
corporate governance functions
Ideas for enhancing Luxembourg’s attractiveness (cont’d)
Page 10 Real estate niche workshop
Panel 1 - guest speakers
Guest speakers:
► Christopher Bennett, Director, Head of Real Estate, Crestbridge S.A.
► Patrick Steinhauser, Legal Counsel, Lone Star Capital Investments
S.à r.l.
► Kenneth Macrae, Managing Director, Hines Luxembourg S.à r.l.
► Johan Terblanche, Partner, Dechert LLP
Moderators:
► Michael Hornsby, EMEIA Real Estate Funds Leader, EY Luxembourg
► Bruno Di Bartoloméo, Partner, Real Estate, EY Luxembourg
Real Estate Renaissance
Real Estate Private Equity Funds
Global Market Outlook
Luxembourg 16 October 2014
Page 12
Location, Location, Location London Underground ca. 1860
Real Estate Renaissance 16 October 2014
Page 13
Innovation as Demand Driver
► Typewriter ‘67
► Telephone ’76
► Automobile ‘85
► Coke ‘86
► Surgical Robots
► Healing Power grid
► Cardboard Bike
► Virus Detection
Page 14
Innovation creates Job Growth
High
Growth
CITY Patent Growth Job Growth
Boise City-Nampa, ID 11.9% 2.9%
Provo-Orem, UT 8.9% 2.9%
Raleigh-Cary, NC 8.8% 2.6%
Austin-Round Rock-San Marcos,
TX
8.1% 3.4%
Las Vegas-Paradise, NV 7.2% 3.8%
Tuscon, AZ 6.5% 1.7%
Low -
Growth
Pittsburg, PA -1.1% 0.3%
Buffalo-Niagara Falls, NY -1.2% -0.1%
Toledo, OH -1.3% -0.2%
Dayton, OH -1.6% -0.6%
Page 15
Amazon Fulfilment Centre
► Walmart Sales - $473B
► E-Commerce Sales - $300B
► Amazon sales – $60B
► Walmart E-commerce - $10B
► “Second Inning”
► $14 Billion invested since 2010
► 3.5 Million packages/day
► 37 million on Cyber Monday (400/sec)
► Order packing Robots, RFT Tags
Page 17
Digital Battleground Is there slowdown in Europe?
Number of UK Retail Stores
Source: Green Street Advisors
Page 19
E-commerce
The Online Challenge
Consumers will not select an online retailer when:
► Delivery costs are High
► Cannot offer Next Day Delivery
90% of companies offer Next Day shipping at generally 4x of
ground
NOT SUSTAINABLE
Page 20
Solving for Affordable 1 Day Shipping
Amazon Fulfillment Network (23)
2012-2015 Planned (5)
Source: Europedia, MWPVL International
Page 21
Amazon Model Vs Omni Channel Distribution
► Amazon Fulfillment Network
► 2012-2015 Planned
► Amazon Plans – Million Sq. Ft.
Key m
etric
s a
nd A
rea c
om
paris
ons
27 sq. ft.
Since FY09, a sq. ft./person decreased
$15M
► A very wide range of sq. ft. person exists to rationalize
► Top 100 good practice sq. ft./person examples:
► < 10 8 sq. ft.: Baltimore, Mexico City, Milano, San
Francisco, Santiago
► < 9 7 sq. ft.: Almaty, Bangkok, Johannesburg, Kuala
Lumpur, Roma
► < 8 6 sq. ft.: Atlanta, Kiev, London, Moscow, Sao Paulo,
Singapore
► Narrowing the sq. ft. per person range will:
► accommodate our projected growth
► provide a lower cost base to ensure competitive
advantage
Global (including Japan)
Top 100 sq. ft. person range
44 – 415 sq. ft.
(Rio–Copenhagen)
Spend
~$1.1 B Total sq. ft.
22 Million
sq. ft.
122 sq ft
EMEIA
Top 100 sq.. person range
44 sq. ft. – 415 sq. ft.
(Mumbai–Copenhagen)
Spend
~$ 558 M Total sq. ft.
12 Million
sq. ft. person
135 sq. ft.
Americas
Top 100 m2 person range
44 sq. ft. – 285 sq. ft.
(Rio– G. Cayman)
Spend
~$ 335 M Total sq. ft.
6 Million
sq. ft. person
110 sq. ft.
Asia-Pac
Top 100 sq. ft. person range
57 – 241 sq. ft.
(Makati–Auckland)
Spend
~$158 M Total m2
3.3 Million
sq. ft. person
111 sq. ft.
US$1.1B Current Real Estate spend
► By implementing Workplace of the Future in the top 27
countries, we have estimated an opportunity to potentially cut
our occupancy costs in half.
For every square foot reduction equates to
Work
pla
ce o
f the F
utu
re 1
2 K
ey In
dic
ato
rs
We have defined key requirements for locations implementing Workplace of the
Future
Te
ch
no
log
y
Increased collaborative technology (e.g. Video conferencing, Smart Boards, M&C tools)
1
Technology to support in office mobility and transition between work settings (e.g. Wifi, touch screen reservation)
2
Ta
len
t
3
Existing flexible working culture/ flexible working behaviors or apparent leadership desire to develop new ways of
working is considered critical to success
4
The office becomes “an” environment and not “the only” environment in which employees are expected to work.
5
Re
al E
sta
te / F
ac
ilit
ies
Man
ag
em
en
t
Offices and work spaces are not assigned, breaking down hierarchy and using space as a tool vs. an entitlement 6
7
Open look and feel with clear EY branding in support of Vision 2020
8
Protocols exist to govern use of office space and support increased respect for each other’s use of time and space
9
Range of formal and informal work settings to suit both individual and group work, including a range of collaborative spaces
Storage solutions and reduced dependence on paper
Bu
sin
es
s
Page 25
Top items to consider when acquiring a Real Estate Investment Platform
Ability to access existing
and new sources of
capital
Management team
credendialized with investors
Management team that is
complimentary to the culture
of the platform
Expanded growth
prospects in new regions
Global investment solutions
New, broader access to deal flow
Expanded distribution capabilities
New product development
New relationships
and expertise
Integration of back and middle office
► Pricing Considerations: Public Multiple impact: Carry Valuation: Product Overlap: AUM
Page 26
Top five points for capital raising
1.
Defined and differentiated
investment strategy
3.
Demonstrable
track record
2.
Experienced team
4.
Strong alignment
of interest
with investors
5.
Clear capital
raising strategy
Although change in the industry is constant, some things stay consistent over time
Page 28
Potential Consequences of AQR
A Pre-emptive capital raisings/action
B Pre-emptive loan sales/workouts
C Emergency capital raising action
D Distressed M&A for those that can't raise capital
E Structured sale of loan books following deeper provisioning
F Continued implementation of internal bad bank/non-core units and then programmes of sale from these
Integration of distressed M&A and systematic exits of non-core positions G
Although the impact of AQR results on the supply of loans to transaction markets is unclear,
there are a number of potential consequences
Page 29
Investor
communications Investor reporting
Dashboard
Other integrated
services
Document
management
Workflow
management
LP performance
and analysis
Other LP and
portfolio reports
Portfolio
performance and
analysis
RE regulatory
compliance
Financial
statements
Fees and
expense reports
Fund performance
and analysis
Other financial
reports
General reporting
Multi-currency
support Reconciliations
Controls and
audit logging
Mgmt. company
accounting
Complex
structures (SPV)
Calls and
distributions
JV level data and
reporting
Capital account
allocations
Investor events Fee calculations
Fund inception Portfolio management Asset management Reporting Accounting
Fund set-up Portfolio monitoring
Fund raising Investment activity Asset Management Financial reporting Financial accounting
LP and portfolio reporting
Tax
Treasury
Property management
Investor portal
Investor servicing
Investor interface
Marketing support Prospecting
LP due
diligence support
Contact
management
Fund structuring Investor setup Benchmarking and
forecasting Deal flow monitoring
Tax and REIT
Compliance
Data and document
management
Cash planning and
forecasting
Banking
relationships
AML/KYC Subscription
processing
Portfolio company
data collection
Portfolio company
analysis Property level data Lease management
Valuation Portfolio reporting Budgeting/
forecasting Property accounting
Cash and liquidity
management
Financial risk
management
Facilities
management
Capital
improvements
Distribution events Capital events Asset surveillance Valuations
Investment exit Investment funding Cash planning and
forecasting Value creation
Data analysis Risk management Regulatory
Tax books and
records
Tax forms, reports
and estimates
Key
High demand
Little demand
Medium demand
Average demand
Core real estate fund administration
Capabilities provided by asset manager and lifted-out operations
Page 30
Key issues and concerns in the market
Management
fee errors
Improper lease
management
► Rent roll
inaccuracies
► Noncompliance with
the lease agreement
► Missing
documentation in
lease files
Lack of controls
around cash
management
► Bank reconciliation
approval
► Invoice approval
Duplication and/or
inactive vendors in the
vendor list
Inadequate property
and tenant insurance
as required by the
management and
lease agreements
Property manager
Lack of confidence
in the quality of the
data included in
reporting from the
property manager
Lack of visibility and
transparency into
operational and financial
processes at the
property level
Increasing concerns
that the property
manager’s controls
are not functioning
property
Executive
management
concerned with
managing
reputational risk
Cost leakage — costs
being passed through to
asset managers
incorrectly
Investment manager
Page 33 Real estate niche workshop
Panel 2 - guest speakers
Guest speakers:
► Keith Burman, Partner, ManagementPlus (Luxembourg) S.A.
► Patrick Reuter, Partner, Elvinger, Hoss & Prussen
Moderators:
► Dietmar Klos, Partner, Head of Financial Services Tax,
EY Luxembourg
► Mathieu Volckrick, Executive Director, Regulatory Services Leader,
EY Luxembourg
Page 34 Real estate niche workshop
What is a REIT?
REIT is
► a generic concept commonly used in order to refer to an investment
vehicle (usually widely held)
► that derives its income primarily from long-term investment in
immovable property
► and that benefits from a flow-through tax regime on its (direct and
indirect) real estate income and gains
► These vehicles usually provide for a single-level of taxation in the hands
of the investors in the REIT
Page 35 Real estate niche workshop
What is a REIT?
Tax considerations
► General: Taxation of REITs should ideally enable the investor to obtain a
similar after tax result to what would occur had they invested directly in
property (single-level taxation)
► Flow-through entity (partnership or contractual)
► No taxation at REIT level
► Taxation at property level as well as investor level to be considered
► Corporate REIT
► Tax exemption recommendable (exemption as such, exemption of RE
income, or eligible to claim a deduction for distributions to investors)
► WHT considerations
► Access to double tax treaties and EU Directives
► Taxation at property level as well as investor level to be considered
Page 36 Real estate niche workshop
The global REIT Market – A selection
Belgium:
SICAFI (17) Luxembourg:
RE-SIF (270)
Germany:
G-REIT (4)
Lithuania:
REIT (7)
France:
SIIC (37)
US:
REIT (163)
Bulgaria:
SPIE (22)
Singapore:
REIT (32)
UK:
UK-REIT (23)
Hongkong:
REIT (11)
Greece:
REMF (3)
Australia:
ALPT (52)
Turkey:
REIT (25)
Page 38 Real estate niche workshop
Panel 3 - guest speakers
Guest speakers:
► Marnix Arickx, CEO, BNP Paribas Investment Partners Belgium
► Rudolf Kömen, Head of Luxembourg based global fund product
platform, Credit Suisse
Moderators:
► Kai Braun, Executive Director, Alternatives Advisory Leader,
EY Luxembourg
► Rafael Aguilera, Executive Director, Advisory Services,
EY Luxembourg
Page 41 Real estate niche workshop
Contacts
Michael Hornsby
Partner
EMEIA Real Estate Funds Leader
+352 42 124 8310
Bruno Di Bartoloméo
Partner
Real Estate
+352 42 124 8493
Dietmar Klos
Partner
Head of Financial Services Tax
+352 42 124 7282
Rafael Aguilera
Executive Director
Advisory Services
+352 42 124 8365
Kai Braun
Executive Director
Alternatives Advisory Leader
+352 42 124 8800
Mark Grinis
Partner
Global Real Estate Fund Leader
+1 212 7735 148
Mathieu Volckrick
Executive Director
Regulatory Services Leader
+352 42 124 7014