Investment VehiclesWith funds now the dominant investors in real estate on a global level, proper structuring choices could make a significant difference to after-tax returns, according to Enda Faughnan, tax partner in PwC Real Estate.
He told a business breakfast meeting that Irish investors continue to be "big players" in the international property market in terms of property development and investment.
As real estate investment vehicles became more complex, he said proper structuring from the start, often a few years in advance of the transaction taking place, was crucial to maximising the ultimate benefit. And with the emergence of new investment products, like funds, proper advance structuring covering the legal, tax, regulatory and local perspective, as well as the exit strategies, could make a radical difference.
Faughnan said he envisaged Irish investment syndicates continuing to snap up trophy property deals, particularly in the UK and "old Europe" but also across the globe with deal sizes of €1 billion not being unusual. The Irish market simply could not satisfy demand for these kind of "trophy" deals - hence the move towards increased investment internationally.
And with new investment products and structures there were significant opportunities but not coming without their threats. In response to this relatively recent demand, numerous boutique firms and banking divisions had evolved specialising on an exclusive basis in finding international property "products" in which the bigger investors could invest. The types of deals on offer include shares in listed and unlisted companies, straight forward asset deals, mezzanine finance deals and more complex deals based on life assurance and other financial products.
Faughnan predicted that real estate would continue to be an attractive asset class for Irish investment but with an increased focus on the underlying fundamentals, i.e. lower risk lower return opportunities. He sees a continued move to emerging markets, such as Asia and eastern Europe, and more recently Latin America.
He said the nature of real estate investment would continue to become more complex. For example, more complex investment structures having many parties involved across several territories would require considerable advance planning to ensure the right structures were in place at the right time. Also proper co-ordination and compliance across all countries would "maximise the ultimate benefit for all concerned".
