Deloitte Real Estate Symposium March 2015

Real Estate Symposium – Luxembourg – 17 March 2015 1

Navigating the change on Real Estate

Real Estate Symposium Luxembourg – 17 March 2015

Real Estate Symposium


Opening remarksBenjamin Lam, Head of Real Estate, Deloitte Luxembourg

Real Estate Symposium – Luxembourg – 17 March 2015 3Real Estate Symposium – Luxembourg – 17 March 2015

Real Estate SymposiumMarket Buzz

“Qatar and Brookfield win battle to take over Canary Wharf” –FINANCIAL TIMES

“Abu Dhabi Investment Authority eyes up prime London hotels” THE NATIONAL “Blackstone eyes $1.5bn

Willis Tower deal” –FINANCIAL TIMES

12354

786910

“The joint venture between US Private Equity giant KKR and Real Estate company Deutsche Immobilien Chancen(…) plans to invest billions in Germany’s property market” - HANDELSBLATT

“AG Real Estate finalises first major real estate investment deal in Germany “-

AGEAS

“London’s commercial property market has gone from gloom to boom in just 18 months –and its skyline is the biggest beneficiary” – FINANCIAL TIMES

“Brazilian billionaire Joseph Safra paid £726m for Square Mile landmark the Gherkin” –FINANCIAL TIMES

“Spain Banks With $55 Billion of Property Seek Deals: Mortgages“ - BLOOMBERG

“Commerzbank AG recently began shopping around the [Spanish] portfolio (…) that

includes loans with a face value of €4.4 billion that are backed by shopping centers, hotels

and offices.” – THE WALL STREET JOURNAL

“Investors believe prices have now bottomed out in Paris and are keen to take advantage of the favorable market conditions” - FORBES


Real Estate SymposiumSome figures

N America Europe Asia

36,8% 44,6% 59,4%

% of investors willing to Increase Real Estate Allocations in 2015

Source: Inrev – Investment Intentions Survey 2015

Volume of Real Estate deals01/ EVOLUTION OF

VOLUME OF REAL ESTATE DEALS IN WESTERN EUROPE



Real Estate SymposiumSome figures


41,4% Percentage of Investors whose preferred route to investment will, in 2015, be through Joint Ventures and Club Deals

GERMANY

1

32

4UK

FRANCE

Top 3 investment destinations in Europe:

0,0%10,0%20,0%30,0%40,0%50,0%60,0%70,0%80,0%90,0%

EU Investors Asia Pacific North America

% of Allocation to EU non-listed RE funds

EU non-listed RE Funds Others


Real Estate SymposiumNavigating the change on Real Estate

A new cycle is upon us!

MACROECONOMICSGLOBALIZATION

SOURCES OF CAPITAL

SUSTAINABILITY

TECHNOLOGY

REGULATION

RISK PROFILE

ASSETS


Benjamin LamPartnerDeloitte LuxembourgBenjamin is a partner within the audit department and has over 20 years of experience in the financialservices and commercial industries. He leads Deloitte Luxembourg's private equity and real estatepractice in Luxembourg and is specialized in both regulated and unregulated private equity and realestate funds and in cross-border transactions.

Partner, Head of Real Estate, Deloitte Luxembourg

Key contact

Real Estate Symposium – Luxembourg – 17 March 2015

9:10 a.m. – 9:30 a.m. New ways of working – How the current era influences the way in which we use

Real Estate

Frédéric Sohet, Partner, Deloitte

9:30 a.m. – 10:00 a.m. Real Estate Capital Flows - Wealth Management as a source of Capital

Roberto Varandas, Global Head of Business Development - Property, Aberdeen Asset Management

10:00 a.m. – 10:30 a.m. How to address Risk Management and Valuation in Real Estate- Frank Schickram, Head of Valuation, Strategy and Research, GLL Real Estate Partners

- Martin Müller, Head of Fund Accounting, GLL Real Estate Partners

- Andreas Meier, Deloitte

11:00 a.m. – 11:30 a.m. BEPS – Update and main challenges for Real Estate PlayersDavid Capocci, Head of Real Estate Tax, Deloitte

11:30 a.m. – 12:00 a.m. A first glance at Deloitte’s European Real Estate Investment Management surveyGerard Lorent, Deloitte

Agenda


New Ways Of Working:How the current era influences the way in which we use Real EstateFrédéric Sohet, Deloitte Belgium


Efficiency of the workspace – Survey resultsNew Ways Of Working

- Survey conducted by Deloitte France & Leesman

- 31 countries- 52 customers- 355 sites (90% located in Europe)- 43.058 respondents

Only 53% feel that their workspace allow them to work in a productive way.

2/3 believe that their workspace answer their critical professional needs.

Decrease of noise pollution and better temperature control are the most

bespoken ideas to improve the comfort of the workspace.

6/10 believe that their workspace reinforce the feeling of

belonging to the business community.

39% wish to have more individual concentration zones and social interaction zones.


Major advances in technology and changing demographics are transforming the workplace forever

New Ways Of Working

Key trends reshaping

the workforce today

Increasing globalization and outsourcing

Growing dominance of networks instead of hierarchies

Productivity measured in outputs, not in hours

Intergenerational interaction and conflict

Values versus rulesA trust-based culture

Organizations increasingly rely on communication technologies, to collaborate and communicate


Key trends reshaping the workforce and workspacetoday

New Ways Of Working

Tenants embraceTECHNOLOGY

Corporates adopt new audio and

video conference technologies to efficiently conduct

business meetings.

Building design is evolving to better accommodate flexibility that corporate tenants need. New configurations would allow tenants

to rent about 15% to 20% less space.

Social media is challenging the status quo of

developing talent capabilities, use of mobile has led to

higher virtual collaboration.

According to our People Survey work life balance and flexibility have become one of the top items

on the agenda.Corporates are adopting

alternative workplace strategies.

Generation Y drives changes inworkplace culture and behavior.


New Ways of Working what is it about?New Ways Of Working

New Ways of Working is about developing a working culture and environment which:

• stimulates innovation, creativity and is output driven;

• creates a better work-life balance and allows flexibility;

• is geared around communities;

• uses advanced technology;

• has a positive impact on sustainability.

New Ways of Working is a multidisciplinary path. It is about taking an integrated set of initiatives to adapt your working culture & working environment to the future challenges for your organization, in a way that it drives stakeholder value creation.


New Ways of Working why is it taking off?New Ways Of Working

Forces

Property• Tendency of cost reduction (smaller

offices/ flexible, churn free spaces)• Properties of proximity• Activity based working & collaboration• Increasing importance of privacy

Sustainability• Increased corporate attention on

environmental sustainability• Increased consumer and shareholder

awareness of the social and environmental responsibility of companies Mobility

• Traffic is highly congested• Transport systems

Technology• Era of rapid technology advancement• Broadband connections are cheap and

internet usage is very high• Technology converging devices - iPad,

iPhone

People• Changing demographics• Changing demand for flexible

employment contracts• Demand for work-life integration

/appreciation of good work-life balance

Culture• Upcoming 24/7 culture• The power distance between managers and

employees is low• The importance and power of mass collaboration

Change Management & Communication• Coaching culture


Impact of these trends on the office marketNew Ways Of Working

• “Smaller but smarter”.

• Over the past 30 years, some companies have reduced the allocation of space per person by up to 50%.

• The allocation of a workplace per person evolved from a ratio higher than 1 to a ratio of 0,8 even 0,6 in certain companies.

• The average workplace occupation amounts between 60% - 70%.

• Average surface (GLA) per workplace has fallen from approximately 23 m² per workplace to an average of 19,6 m² per workplace but some organization achieve today 14 m² per workplace or less.

• Occupancy cost decreased by 15% in absolute terms over the last 8 years (12.017 €/ FTE).

• Implementation of New Ways of Working can result in a saving of 15 to 20% of the total surfaces.


New Ways of WorkingOur Project


The starting point for DeloitteNew Ways Of Working

Opportunity to review our current working culture & environment

Move to GatewayOur strategy

Deloitte Ways of Working (DWOW)

• Defining our vision of how NWOW can make us the distinctive firm to work with and for• Enhancing collaboration, innovation, operational excellence, and productivity• Delivering a roadmap (for talent, sustainability, mobility, technology, property and culture)


Our ambition levelsNew Ways Of Working

Welcome to ‘yourDeloitte’ –An open environment inspiring connections, sharing & collaboration

Deloitte offers you the building blocks todesign and shape yourcareer

Our offices are nerve centres formoments that matter

Access to our uniquecombined expertise is easy through anorganisation whichfosters collaboration


Our approachNew Ways Of Working

Customer Experience TalentCollaborative

communitiesMobility &

sustainability

As Is To Be Validate Implement

Work streams

Steps

Program & change managementMarketing & Communication

Technology

Regionaloffices

Headquarter

Other production sites, SSC, etc.


We identified four WorkstreamsNew Ways Of Working

Collaborative communitiesour offices are nerve centresfor moments that matter, with

individual work zones, collaboration zones & informal

social zones.

Customer experiencean open environment inspiring connections,

sharing and collaboration.

Mobilityoptimise urban

mobility experience of our employees.

Talentbuilding blocks to design and shape your

career.


Our lessons learnedNew Ways Of Working

• Foresee sufficient time for the visioning phase whilst keeping momentum.

• Base your ambition level on your strategy and identify upfront your NWOW value drivers:

• Increased asset efficiency;

• Increased productivity;

• Improved operating margins;

• Responsiveness to external expectations.

• Create firm-wide engagement and involvement – select NWOW ambassadors across departments to stimulate collaboration.

• Set up a solid project management office with clear roles and responsibilities to keep track of pilot project results and to capture value.

• Include a change management and leadership track in your project approach and work on your coaching culture.


Appendix


Activity based workingDeloitte

Individual concentration zone Collaboration zone Social interaction zone

Social interaction zone Individual work zone


Deloitte DigitalDeloitte


Green house - Design, Create and InnovateDeloitte


Frédéric SohetPartnerBelgium Real Estate & Construction Leader

Frédéric Sohet is the Real Estate & Construction Industry Leader for Deloitte Belgium and Partner Financial Advisory Services since 2010.

Partner – Real Estate & Construction, Deloitte Belgium

Key contact


Real Estate Capital Flows: Wealth Management as a source of

CapitalRoberto Varandas, Global Head of Business Development -

Property, Aberdeen Asset Management


Current state of capital markets


Property and other real assets experiencing sustained growth over the last decade both in terms of relative allocations to other asset classes but also due to the emergence of more sources of wealth concentration.

Allocations set to increase in the near future.

Current state of capital marketsSize, Demand, Flows

Source: INREV Investor Intentions Survey 2015


• According to Preqin, size of private real estate funds industry currently at $742bn (record high) and dry powder estimated to be at $221b.

• Funds launched in 2006 and 2007 starting to return capital to investors either due to catch-up of prices and ability to exit, or simply, liquidation. INREV predicts €17bn of fund liquidations coming due in 2015.


Source: INREV Capital raising survey 2014


Investor intentions


Despite low prospective GDP growth, Europe still very much flavour of the month with US investors targeting value added and opportunistic strategies and SWFs targeting large assets and portfolios.


Source: INREV Investor Intentions Survey 2015


As economic growth returns, preference for value added strategies increases as fund managers feel confident in taking on leasing risk or repositioning of assets.



Alternative sources of capital


• After a hiatus from 2008 to 2012, wealth managers directing clients’ capital to real estate investments.

• Investments channelled through feeders into co-mingled funds and/or dedicated separate accounts / direct assets.

• Interest in real estate increases as property values increase almost everywhere, particularly in the global gateway cities.

• Property investments sometimes create an emotional attachment.

• Wealth managers also looking at alternative channels into real estate – real estate debt, secondaries, fund of funds.

Alternative sources of capitalPrivate banks / Wealth managers


Benefits ChallengesCan provide healthy levels of income IlliquidTends to have low correlation with other asset classes

Diversifications requires large amount of assets

Real asset - tangible Quality of assets varies greatlyLeverage LeverageLow volatility High costs to own, including taxes

Requires specialized management

Alternative sources of capitalBenefits and challenges of real estate in a private client portfolio


Alternative sources of capitalConsiderations on real estate in private client portfolios

• Private client capital, even channeled via professionally managed feeders, does not always sit well with institutional capital. Some investors are even precluded from investing alongside private clients.

• Expectations around liquidity need to be very well managed:

• Open ended funds have limited liquidity both on during subscription and redemption periods.

• Closed ended funds offer no liquidity and require earmarking of cash during the commitment period.

• Structures can be complex and need to carefully consider tax, governance and operational issues.

• Wealth managers tend to charge high fees, which can dilute returns significantly.

• Private clients tend to have already high degrees of exposure to real estate.


Roberto VarandasGlobal Head of Business Development - Property London, United Kingdom

Mr Roberto Varandas is Global Head of Business Development - Property and is responsible for property funds distribution and the property business development team. Roberto sits on the Aberdeen Property Management Committee.Roberto joined Aberdeen in September 2011 from UBS Global Asset Management where he was Head of Business Development - Europe for UBS Global Asset Management - Global Real Estate. Previously, Roberto worked for the Capital and Marketing Group, a capital markets adviser specialised in capital placement for alternative investments, in particular, property funds. Roberto has been involved in over 20 individual funds, totaling over €15 billion in equity capital.

Global Head of Business Development - Property

Key contact

[email protected]: +44 7825842842T: +44 2074636437

mailto:[email protected]


How to address Risk Management and Valuation in Real Estate

Market- and Asset- Rating as Risk Tool

Frank Schickram, Head of Valuation, Strategy and Research, GLL Real Estate Partners

Martin Müller, Head of Fund Accounting, GLL Real Estate Partners

Andreas Meier, Deloitte Luxembourg


GLL Real Estate Partners

Munich | Luxembourg | Budapest | NY | Orlando | San Francisco | Santiago

GLL Offices

100+

Employees

15+Countries

3Continents

73%

21%

6%

Büro Einzelhandel Logistik

47%

35%

15%

3%

Westeuropa USA

CEE Lateinamerika

€5Mrd.

AuM

Founded in 2000

Sector

Allocation

Geographic

Allocation


Permanent, functionally and hierarchically separated

Consistency with risk limits set, monitor risk limits

Risk Categories

Risk Management

Risk Management function

Liquidity Risks

Credit (and counterparty) Risks

Market Risks

Main topic today

Strategic Risks

Risk identification, measurement, management and monitoring

Report to governing body and senior management

Main topic today


Identification of RiskRating System


Real Estate KITE™ Analysis

RISKMONITORING

/ IDENTIFICATION


Rating Systems - Overview

GLLMARA

GLL KITE

InvestmentMarket

Real Estate Fundamentals

Economy(Macro / Regional)

LocationRisks

„Cash-Flow“ Risks

Asset Risks

Market Risks


Rating Systems – Components

Building Quality

Fit Out

Life Cycle

Sustainability

Suitability of Micro

Location

Quality ofTransportation

Local supply facilities for

target occupier

Actsof

God

WALTValue

Tenant Credit

Letting Situation

Fungibility

Transaction Volumes last

Year

10 YearTransaction

Average

Transactions compared to Market Cap.

VacancyAbsorption

Ratio

Net Additions in next 3 Y.

Net Absorption in

next 3 Y

Cap rate compared to 10 Y History

Rental Growth next 3

Years

Spread to Government

Bond

5 Year GDP Growth

IMD Competitiven

ess

Moody´s Country Rating

Selected ratio Selected ratio

W

GLLMARA

GLL KITE


Rating Systems


Rating Systems – Assessment and Monitoring

OVERSUPPLY FLOOD RISK SHORT WALT

CAPEX RISK

FALLING MARKET RENTS

WEAK DEMAND

IN LEASING

LESS TRANS-

ACTIONS

POSSIBLE RISKS AFFECTING REAL ESTATE / VALUATIONS

Selected ratio Selected ratio

Building Quality

Fit Out

Sustainability


Location

Local supply Facilities for

target occupier

Tenant Credit

Letting Situation

Fungibility

Life Cycle


Actsof

God

WALTValue

W


Year

10 YearTransaction

Average


VacancyAbsorption

Ratio


Net Absorption in

next 3 Y



Years


Bond

5 Year GDP Growth

IMD Competitiven

ess

Moody´s Country Rating


Rating Systems – Coverage & Update

Global Cities

94North-

AmericanMetros

54European

Metros

35Latin-

AmericanMetros

5

Datapointsto generateone Kite™

98BiannualUpdates

2

VISUALISATION GLL Real Estate KITE™

Coverage

Data Inputs & Update

GLL KITE


GLL KITE ™ Let´s take a closer look!

GLL KITE


HIGH transaction volume, instantmarket exit possible

LOW transaction volume, PROLONGED exit period needed

LOW vacancy, HIGH demand, LOW future supply

HIGH vacancy, LOW demand, HIGH future supply

STRONG GDP outlook, politicalySTABLE

WEAK GDP outlook, LOWER transparency

PREDICTABLEreturns

VOLATILE returns

„CHEAP“ buyer market

„Expensive“ seller market

Market LiquidityLeasing Potential

1 2 3 4 5

low high

Economic StabilityStability of ReturnsPrice Attractiveness

How to read the Risk with the KITE™


How to read the KITE™ - Price Attractiveness

5,0%

6,0%

7,0%

8,0%

9,0%

10,0%

Was

hin

gto

n

San

Fra

nci

sco

New

Yo

rk

Bo

sto

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Ch

icag

o

Pit

tsb

urg

h

Au

stin

Den

ver

Nas

hvi

lle

Seat

tle

Po

rtla

nd

Net Initial Yield (10Y)Max Min Last

2,3%

15,3%16,6% 16,8%

9,3%7,2% 7,0%

11,5% 12,1%9,2%

14,0%

Was

hing

ton

San

Fran

cisc

o

New

Yor

k

Bost

on

Chi

cago

Pitts

burg

h

Aust

in

Den

ver

Nas

hville

Seat

tle

Portl

and

Rental Growth (3Y, Sum)

Cap rate compared to10 Y History


Years


How to read the KITE™ - Visual Comparison

WASHINGTON NASHVILLE


How to read the KITE™ - Leasing Potential

Prague

Copenhagen

Helsinki

Lille

Lyon

Marseille

Paris: CentralBerlin

Frankfurt

Hamburg

Munich

BudapestDublin

Milan

Rome

Amsterdam

Vienna

Brussels

Rotterdam

Oslo

Warsaw

LisbonBarcelona

Madrid

Stockholm

BirminghamEdinburgh

Glasgow

London: Central

London: City

London: WE

0

100.000

200.000

300.000

400.000

500.000

600.000

0 100.000 200.000 300.000 400.000 500.000 600.000 700.000

3-Y

ear

Ne

t A

dd

itio

n F

ore

cast

3-Year Net Absorption Forecast

Net Addition next 3Y

Net Absorption

next 3Y


How to read the KITE™ - Visual Comparison

PARIS ROME


KITE™ - Monitoring

H1 2014H2 2014


KITE™ - Portfolio Analysis

MadridParis: CBDWashingtonManchesterLondon: Central

Paris: CBDBrusselsAustinSeattleDenverBrussels


KITE™ - Strategic Risk in Overview

H1 H2

Net Addition next 3Y

Net Absorption

next 3Y

Cap rate compared to10 Y History


Years


Asset 1 Asset 2 Asset 3 Asset 4 Asset 5 Asset 6 Asset 7 Asset 8 Asset 9 Asset 10 Asset 11

Market 3,9 4,2 4,0 4,2 4,0 3,9 3,1 3,7 3,7 3,7 3,7

National 20% 4,8 4,8 4,2 4,6 4,3 4,3 3,0 3,6 3,6 4,2 4,2

Economic Stability (incl. Transparency, Credit Risk) 4,8 4,8 4,2 4,6 4,3 4,3 3,0 3,6 3,6 4,2 4,2

Exchange rate volatility (for information only) 2,0 2,0 2,0 2,0 2,0 2,0 2,0 5,0 5,0 2,0 2,0

Regional 80% 3,6 4,1 4,0 4,0 3,9 3,8 3,1 3,7 3,7 3,5 3,5

Socio-economic development & attractivness 3,8 3,9 4,1 3,3 3,9 4,3 3,5 2,4 2,4 2,5 2,5

Real Estate Market 3,6 4,1 4,0 4,2 3,9 3,7 3,0 4,0 4,0 3,8 3,8

Price Attractivness (to sell - Cap rate to Min) 4,3 4,2 4,5 3,5 4,3 4,7 2,9 4,4 4,4 3,7 3,7

Rental growth potential 2,1 4,3 4,0 4,6 4,4 5,0 5,0 4,1 4,1 3,5 3,5

Cycle 3,1 2,8 3,1 2,4 3,0 3,1 1,8 2,7 2,7 2,7 2,7

Liquidity 4,5 4,6 3,8 4,3 3,2 5,0 3,6 4,5 4,5 3,5 3,5

Vacancy - supply and demand 2,9 3,5 4,1 4,1 4,3 3,3 2,8 3,9 3,9 2,9 2,9

Volatility 3,5 4,3 4,0 4,3 4,2 2,8 2,7 3,6 3,6 5,0 5,0

Asset Total 4,4 4,2 3,4 4,4 3,8 4,0 3,3 3,6 3,9 3,9 4,2

Location 4,3 4,1 3,3 4,4 4,0 4,1 4,5 4,1 4,1 3,9 4,3

Quality / Suitability of Microlocation for property type 4,5 4,5 4,0 5,0 4,5 4,5 5,0 4,5 5,0 4,0 4,5

Quality of transportation 4,5 4,5 3,0 5,0 4,0 5,0 5,0 4,5 4,0 4,5 4,5

Quality of local supply facilities for target occupiers 5,0 4,5 3,0 4,5 4,5 4,0 5,0 4,5 4,5 4,0 5,0

Acts of God 3,0 3,0 3,0 3,0 3,0 3,0 3,0 3,0 3,0 3,0 3,0

Asset 4,8 4,6 3,6 4,8 3,7 3,7 3,3 3,0 4,0 4,5 4,3

Building Quality: Architecture and Concept 5,0 4,5 4,0 5,0 4,5 4,0 5,0 4,0 4,5 5,0 4,5

Fit out 5,0 4,5 3,5 5,0 4,0 4,0 3,0 3,0 4,5 5,0 4,5

Structural condition / Life Cycle 4,5 5,0 3,5 5,0 4,0 4,0 3,0 3,0 4,5 4,5 4,5

Maintenance (Capex)/ cost effectiveness building 4,5 4,5 4,0 4,5 3,0 3,5 3,0 2,5 3,5 4,0 4,0

Sustainability 5,0 4,5 3,0 4,5 3,0 3,0 2,5 2,5 3,0 4,0 4,0

Cash-Flow 4,1 3,9 3,3 4,1 3,7 4,1 1,0 3,3 3,3 3,5 4,0

Remaining Lease Term 5,0 5,0 2,5 5,0 3,0 4,0 1,0 3,0 3,0 3,0 4,0

Tenant Credit 4,0 4,5 4,0 3,5 4,0 4,0 0,0 5,0 4,0 4,0 4,0

Letting Situation 3,0 3,2 3,8 4,0 3,7 3,8 3,3 2,2 2,7 3,3 3,3

Vacancy, number of tenants, occupier mix 3,0 3,0 4,0 4,0 4,0 4,0 1,0 2,5 2,0 4,5 3,5

Recoverable and Non Recoverables 3,5 3,5 3,0 4,0 4,0 3,0 4,0 3,0 3,0 3,0 4,0

RP Rental Growth Potential 2,5 3,0 4,5 4,0 3,0 4,5 5,0 1,0 3,0 2,5 2,5

Letting prospects / fungibility 4,5 3,0 3,0 4,0 4,0 4,5 4,5 3,0 3,5 3,5 4,5

MARA – All Risks in Overview


Building Quality

Fit Out

Sustainability


Location


target occupier

Tenant Credit

Letting Situation

Fungibility


Year

10 YearTransaction

Average


Absorption Ratio


Net Absorption in

next 3 Y



Years


Bond

5 Year GDP Growth

IMD Competitiven

ess

Moody´s State Rating

Life Cycle


Actsof

God

WALTValue

W



Building Quality

Fit Out

Sustainability


Location


target occupier

Tenant Credit

Letting Situation

Fungibility


Year

10 YearTransaction

Average


Absorption Ratio


Net Absorption in

next 3 Y



Years


Bond

5 Year GDP Growth

IMD Competitiven

ess

Moody´s State Rating

Life Cycle


Actsof

God

WALTValue

W



Riskmanagement - Process

RISKMONITORING

/ IDENTIFICATION

INFORM INVOLVEDPARTIES

TAKE ACTION

ADJUST ACCORDING TO

RISK

FLY TO

LUXEMBOURG

HOLD THIS

SPEECH

PERFORMCALCULATIONS

STRESSTEST

CONTROLTHE RESULT

DONE?


Frank Schickram Head of Research & StrategyMunich, GermanyFrank Schickram is responsible for Valuation, Strategy and Research at GLL Real Estate Partners GmbH. He joined the group in 2005 and worked prior to his current position as acquisition officer and fundmanager for a globally invested, separate account.Before joining GLL, Frank Schickram was responsible for International Portfolio Valuations at theHypoVereinsbank (Unicredit), where he started his career as real estate appraiser in 1994.Frank Schickram is active in the industry since 1990 with extensive experience in all aspects ofproperty valuation and management of commercial real estate. He is dedicated in the field of trainingand education of valuers and active consultant for a series of current valuation topics (e.g. member ofthe valuation committee at the ULI Greenprint Center of Building Performance).He graduated in Mass Communications, Law and Market Psychology at the Ludwig-Maximilians-Universität in Munich in 1992.

Head of Research & Strategy

Key contacts


Martin MüllerHead of Fund Accounting Munich, GermanyMartin Müller is responsible for Fund Accounting at GLL Real Estate Partners GmbH. Martin Müller joined GLL in 2006 and heads GLL’s Fund accounting team. He is a certifiedinternational accountant and is responsible for the consolidation and the financial statements ofseveral funds with a total volume of over two billion Euros.

Besides dealing with the optimization of the actual tax structure he is also involved in corporatefinance of the GLL Funds and heads the GLL IFRS accounting competence center.

Prior to joining GLL, Martin Müller was working as a manager in a well-known German tax and auditcompany, where he was responsible for the audit and consulting of German and Internationalcompanies.

Head of Fund Accounting

Key contacts


Andreas MeierPartnerDeloitte LuxembourgAndreas is a Partner within the Audit department, where he currently is servicing audit clients in thePrivate Equity and Real Estate department. Andreas has over 14 years of experience in the Financialand Non Financial Services industry, servicing investment management and commercial clients in anaudit and advisory capability in Luxembourg. In addition he has important knowledge in standaloneand consolidated financial statements audits under Luxembourg GAAP, German GAAP and IFRS.

Audit Partner, Deloitte Luxembourg

Key contacts


BEPS – Update and main challenges for Real Estate PlayersDavid Capocci, Head of Real Estate Tax, Deloitte Luxembourg


BEPS ?This is dummy text it is not here to be read

• Level one bullet

‒ Level two bullet

• Level three bullet

BEPS ?This is dummy text it is not here to be read

• Level one bullet

‒ Level two bullet

• Level three bullet

What the BEPS are we talking about?BEPS


Setting the sceneBEPS


Setting the sceneBEPS

December 2015…

“Many governments have decided to encourage PE investments in Infrastructure. Private sector participation can bring additional capital but also end-user benefits from a more competitive environment. (…) Infrastructure investments will only be made if investors are able to earn adequate risk-adjusted returns and if appropriate market structures are in place to access this capital”.

This is a pointer

style

OECD PROJECT ON INSTITUTIONAL

INVESTORS AND LONG TERM INVESTMENT

(MAY 2014)


What if there is only a timing difference on taxation of actual payments routed through intermediary company (instead of a different tax characterization)?

What is Action 2?

Reverse Hybrids

Hybrid Instruments

Hybrid Entities

Hybrid Financial Instruments & Imported Mismatch

ReverseHybrid Entitypayments

Hybrid Entity payments

Hybrid instrument

A

B

Fund

GPPartners

A

Hybrid instrument

“Exploit a difference in the characterisation of an entity or arrangement under the laws of two or more tax jurisdictions to produce a mismatch in tax outcomes where that mismatch has the effect of lowering the aggregate tax burden of the parties to the arrangement”

Should timing differences on taxation and/or notional deductions be considered as a hybrid mismatch?

How will Action 3 impact Action2? Any conclusion should only rightfully be drawn after April 2015

Behind the scene on Action 2BEPS

Real Estate Symposium – Luxembourg – 17 March 2015 70Real Estate Symposium – Luxembourg – 17 March 2015 70

01OPTION

LIMITING INTEREST DEDUCTOIN TO THE ENTITY’S GROUP POSITION

02OPTION

LIMITING INTEREST DEDUCTION TO A FIXED RATIO

What is Action 4?

“Action 4 stresses the need to address BEPS using deductible payments such as interest that can give rise to double non taxation in both inbound and outbound investment scenarios. (…) similar concerns are raised by payments under financial instruments such as guarantees and derivatives.”


What is the likely implication of this Action towards Banks lending to Alternative Investment Funds?

How to synchronize Action 4 with OECD accepted standards for activity remuneration (ie, TP circulars in Luxembourg)?

How to address different criteria in different jurisdictions (and if within same company Group) and also current BEPS oriented measures which are already implemented?


What is Action 6? Focus on CIV’s

Room for Interpretation

Limitation on Benefits (“LOB”)

General Treaty OverrideClause

Principal Purpose Test (“PPT”)

“To develop: (i) model treaty provisions and recommendations regarding the design of domestic rules to prevent the granting of treaty benefits in inappropriate circumstances; (ii) clarification that tax treaties are not intended to be used to generate double non-taxation, and (iii) tax policy considerations that countries should consider before deciding to enter into a tax treaty”.

• Genuine commercial reasons for setup (risk diversification, increase exposure due to capital pooling, economies of scale);

• The wider the investor base, the lower the possibility to influence tax structuring

• Directly or Indirectly most Investors already have Treaty Access;

• Intermediary HoldCos should be entitled strong “in principle” grounds for Treaty Access

• “it is reasonable to conclude”

• “one of the principal purposes”

• “object and purpose of the relevant provision”:

A

B

Fund

GPPartners

A

Focus on Substance

• Place of board of directors meetings

• Where the CEO and other senior executives usually carry on their activities

• Place of senior day-to-day management and Headquarters location

• Which country’s laws govern the legal status of the person

• Where its accounting records are kept



1MASTER FILE

The guidance on TP documentation requires MNEs to provide to their tax authorities information on (i) global business operations and (ii) TP policies.

LOCAL FILE

Companies will need to supply more detailed information on a Local File in each country they operate identifying related party transactions, amount thereof, and TP policy followed to treat each such transaction.

2 3


COUNTRY BY COUNTRY REPORTING

Sets forth an obligation for multinational companies to report on an annual basis (and in each tax jurisdiction in which they have a presence):


Is it all really tax driven?BEPS

12354

786910

PROTECTION OF BRAND AND INTANGIBLES

SYNDICATION OF INVESTORS / CLUB DEALS

NON TAX TREATY NETWORK (IE, EXPROPRIATION CONVENTION)

BANKRUPTCYREASONS

CREDIBILITY AND REPUTATION FOR POTENTIAL INVESTORS

SEGREGATION BETWEEN PRIVATE AND BUSINESS ASSETS (PERSONAL ASSET PROTECTION)

REGULATORY ENVIRONMENT AND

REGULATORY ENTITY REPUTATION

CULTURAL AFFINITIES(ABILITY TO SPEAK SAME LANGUAGE).

GEOGRAPHICLOCATION

(LOGISTICS, ROADS, PORTS,

AIRPORTS))

BANKING REQUIREMENTS (PLEDGE)

10 NON TAX REASONS TO INCORPORATE A COMPANY

OTHER OECD WORKSTREAMS


Country A Advisory

Co

Lux SPV 2

LUX LP

Lux SPV #Lux SPV 1

LocalTarget 1

LocalTarget 2

Local Target #

Lux ManCoSarl

(AIFM)GP

BAdvisory

Co

Investment AdvisoryServices

Management Services / GP interests

AIF (Lux SCSp)(unregulated or regulated SIF)

C Advisory Co

DAdvisory

Co

LPs

LP

Lux Masterco

An upgraded Luxembourg investment platformBEPS


Conclusion


David CapocciPartnerDeloitte LuxembourgDavid joined the tax department in 2004, where he currently leads the Tax Real Estate practice.David has over 18 years experience in international tax with a focus on the Real Estate & PrivateEquity market. He is experienced in structuring deals for both listed and private clients. He alsoleads the development of the Latin America and the Middle East market. He obtained his IslamicFinance Qualification in 2009. Recently, he advised the set up of the first Islamic bank in theEurozone.

Partner, Head of Real Estate Tax, Deloitte

Key contact


A first glance at Deloitte’s European Real Estate Investment Management surveyGérard Lorent, Deloitte Luxembourg


Agenda

Context1

Results of the Survey2

Asset Managers2.1

Q & A3

Asset Servicers2.2


Context• Following the feedback received from

our 2013 Luxembourg Private Equity Survey and our observations of how the market is evolving, Deloitte decided to conduct a survey covering as well the Real Estate asset class for both Asset Managers and Asset Servicers from a Pan-European context

• The Survey is particularly interesting as it gives insights on current market trends such as: Asset Servicers moving towards a

Pan-European coverage via acquisitions or opening of new offices in RE centers

Convergence of service offerings between specialized RE entities entering the depositary space thanks to AIFMD and mainstream banks entering the non-regulated RE business


Results of the SurveyAsset Managers


Objectives and Scope

• This Survey covers RE Asset Managers, particularly those active in the Pan-European market

• The aggregate net assets under management of the RE Asset Managers participating to the survey is approximately €200Bn Investment

PortfolioTaxation

Investors Regulatory Changes

General Overview and Key Figures

Other Operational

Aspects

Growth and

Outlook


36%

29% 29%

14% 14% 14% 14%

AIFMreporting and

leverage

Delegationof functions

Remuneration Liquiditymanagement

Regulatorycapital

Valuation Riskmanagement

Custodian

75%

25%19%

13%0% 0% 0%AIFMD FATCA EMIR Dodd-Franck MiFID II Solvency II Other

Regulatory Changes

• Four regulations were considered highly significant but 75% of RE Asset Managers agree that AIFMD is a primary concern

Regulations considered to be ‘highly significant’

Impact of AIFMD provisions on the organization• AIFMD’s

reporting and leverage requirements is the greatest challenge for RE Asset Managers


Fundraising Activities

50%

21%

7%

21%

Easy Difficult Very difficult No change

Assessment of fundraising over the last 24 months• 50% of Asset Managers have had a positive experience in the fundraising activity over the past two years

100%

No change

Assessment of the fundraising over the next 24 months

100%

Difficult

• Fundraising is expected to get less complex in the next two years

66%

34%

Easier No change

100%

No change


Pension funds18%

Insurance companies

14%

Funds of funds11%

Corporations

11%

Sovereign wealth funds10%

Others36%

Main Business Feeders

• The top 5 investors in RE are pension funds (18%), insurance companies (14%), fund of funds (11%), corporations (11%) and sovereign wealth funds (10%)

• Others mainly represent charities, foundations and non-profit organizations (8%), high net worth/family offices (8%), government institutions (8%), investments banks (6%) and others (6%)

Top investors

Increase DecreaseNo change


Strategy and Country of Investments

54%

17%

29%

53%

19%28%

Core Value-added Opportunistic

Breakdown of Real Estate assets by strategy

Main markets for investments in the future

91% 91%82%

45%

27% 27%

64%

UK Germany France Nordiccountries

Spain EasternEurope

Rest of EU

• There is an increase in the investment allocation for the value-added strategy and a slight decrease in core and opportunistic

• UK, Germany and France are the top ranked countries where RE Asset Managers are looking to invest in

FutureCurrent


Taxation

73%

60%

20% 20% 20%13% 7%

0%

20%

France Germany Italy Luxembourg UnitedKingdom

Spain Netherlands Ireland Others

Countries where tax authorities have increasingly challenged cross border tax benefits

Expected changes in the implementation of OECD’s BEPS framework

85%69%

54%46%

31%23%

0%Increased insubstance /personnel in

"holdingcompany"

jurisdictions

Increase in taxcosts on dealunderwriting

Major changes Decreasing useof "holdingcompany"

jurisdictions

Minor changes Greater use ofREIT structures

Others

• Accordingly, RE Asset Managers have experienced the most activity around cross border tax benefits with the French and German tax authorities

• 85% of RE Asset Managers anticipate an increase in substance where the holding companies are set-up


Service Providers

10

7 6

3 3 3 2 2Property

managersLawyers Accounting /

corporateservices

Tax advisors Fundadministrator

Auditors Custodian Financialadvisors

Average number of service providers used by RE Asset Managers

Expected changes in the coming years in terms of use of service providers

61%

28%

11%

Current service providers Use new service providers Decrease number of serviceproviders

• Complex network and relationship management

• Some changes but not towards simplification or relationship


Focus of Future Investments and Developments

Analyst(4%)

Tax (10%)

Information System (11%)

Regulatory/Legal (13%)

Investor Relations (13%)

Risk Management (14%)

Portfolio Management (16%)

Ord

er o

f Prio

rity

Low

High

• The RE Asset Managers are notably prioritizing investments or improvements around portfolio management, risk management, investor relations and regulatory

• These development areas have been identified as key issues and challenges currently faced by most RE Asset Managers

Compliance (6%)BMO Corporate (6%)

BMO(1) Fund Admin (6%)

Future investments and developments


Results of the SurveyAsset Servicers


Objectives and Scope

Portfolio Valuation Reporting

Client Acceptance

General Overview and Key Figures

Regulatory Framework

Growth and

Outlook

• Our RE market survey covers the RE Asset Servicers, particularly those active in the Pan-European market, and is aimed primarily to gain an understanding of key areas in their business, their operations and their insights on business growth and development

• The aggregate assets size of the RE Asset Servicers participating to the survey is approximately €123Bn under administration and €102Bn under depositary

Other Operational

Aspects


Organization

Dedicated RE unit within the organization• The majority of the Survey Respondents have a combined PE-RE team within their organization, we observe that some market players have reached a sufficient critical mass to segregate the RE from PE activity

• While the remaining Survey Respondents have no dedicated units within their operating model they have put in place a dedicated staff or teams covering RE activity but only in some departments rather than a desk centralizing all services

82%

18%

of which 27%

have a dedicated RE

team

Combined PE and RE unit No dedicated team


Net Assets Under Administration and Custody

RE assets volumes

30%

19%

5% 5%

41%

19%

26%

13%

7%

35%

Less than €500M

€500M - €1bn €1bn - €5bn €5bn - €10bn €10bn - €50bn

DepositaryAdministration

• Majority (64%) of the Service Providers offer combined Central Administration and Depositary services

• Only some mainstream banks offer stand alone Depositary services (niche providers)

• The book of regulated business of the Central Administrators surveyed is concentrated on the opposite sides of the defined AuA spectrum i.e. less than €500M and €10bn – 50bn


Other Operational Aspects - IT Systems

Are you satisfied with your current RE system?

36%

55%73%

27%

NoYes

• Almost all Survey Respondents are satisfied with their current RE systems, with a large majority (73%) however considering an upgrade in the next 12 to 24 months

• At the same time over one third of the respondents are considering a system change

Change in the RE system in the next 12 or 24 months

91%

9%

Upgrade in the RE system in the next 12 or 24 months


Focus on Future Developments

Other(14%)

Operating Model or Organizational

Transformation (20%)

Marketing and Business Development (20%)

Technology (23%)

Staff Development and Recruitment (24%)

Ord

er o

f Prio

rity

Low

High

Priority order for the future developments• Staff development, recruitment and retention is a high priority for majority of the Survey Respondents (24%), with over 55% responses indicating staff increase of 11-20 %

• The participants also demonstrated a strong drive towards improvement of their staff capacity through operating model or organizational transformation


Q & A

2015 European Real Estate Investment Management Survey


Gérard LorentDirectorDeloitte LuxembourgGérard is a Director within the Strategy and Corporate Finance Department of Deloitte Tax &Consulting. He is specialized in Regulatory, Strategy and Operations set-up engagements. Hisareas of activities include Asset Management and Services client, Global Custody and Bankingclients for traditional and alternative assets. Gérard is leading Deloitte Luxembourg ConsultingPE/RE initiative. Gérard is an active member of different professional associations notably ALFIand ALCO.

Director, Strategy & Corporate Finance, Deloitte Luxembourg

Key contact


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Deloitte Real Estate Symposium March 2015

Presentations & Public Speaking