13 November 2006
Pan-European property transactions are becoming increasingly important. It is now commonplace for investors and lenders to look beyond their borders to expand portfolios and spread risk.
The importance of pan-European financing transactions to global companies is illustrated by ProLogis. ProLogis has built the first global network of distribution facilities that enable companies to streamline critical supply chain operations across the world. In Europe, it has approximately 280 distribution facilities across 11 countries. But as both investors and lenders continue to expand their scope of interest, so the demand increases for legal advisers that can field international teams. Not only do law firms need experts in each of the relevant jurisdictions, they also need lawyers experienced in cross-border transaction management.
Real estate security is one of the more difficult areas for lawyers and their clients to gain a working understanding of the legal issues in different jurisdictions. It is linked intrinsically to local laws governing ownership of real estate and local insolvency regimes. While the EU Insolvency Regulation (Council Regulation (EC) No 1346/2000) that came into force in 2002 has introduced principles of mutual recognition and co-operation, it has not introduced a single European insolvency law. The 'Holy Grails' of a European mortgage and single insolvency regime are still a long way off.
The type of investment vehicle, its place of incorporation, tax status, location, nature of the real estate assets and of the borrowing are a number of the factors that will need to be taken into account when structuring pan-European property financing. Typically, the principal security will be over the shares of the asset-owning special purpose vehicle (SPV), but with additional security over the underlying real estate assets in order to give the lender the option of direct recourse to the assets.
Useful considerationsIssues that arise when putting in place pan-European real estate security include:
The above complexities have been one factor in a recent trend towards 'synthetic' transactions, in which debt investors can obtain exposure to the performance of the underlying real estate assets through a credit default swap, rather than the traditional loan and security.
John Fordham is a partner and Clare Maunderis a senior associate at Freshfields Bruckhaus Deringer