THE REAL ESTATE PURCHASING TEAM
If you are contemplating investing into the UK commercial real estate market it is critical that you engage a professional team to represent you.
||TYPICAL SCOPE OVERVIEW
|ADIB – Investment Advisory & Financing
REAL ESTATE INVESTMENT ADVISORY (BUY SIDE AGENCY)
- Provide market data and assist with establishing Shari'a compliant real estate investment strategy / criteria
- Act as designated client representative to engage with UK investment agents to originate real estate investment opportunities that meet the defined Shari'a compliant criteria
- Property inspection
- Ensure that the property is rented to a tenant who engages in Shari'a compliant activities
- Filter through and analyse real estate investment opportunities and present recommendations to the client in the form of an acquisition report, including:
- Initial pricing advice
- Lease/tenant analysis
- Leasing/investment comparables
- Market overview
- Future rental growth prospects
- View on future asset management opportunities
- Cash flow modeling of existing / potential income
- Oversee the preparation and submission of bid documents and negotiations with the vendor
- Oversee the transaction to legal completion
- Subject to credit approval and satisfactory due diligence provide senior financing to support the acquisition
- Carry out real estate due diligence on the target property and report to the client on any issues with the property. Dependent on the age of the property and any modifications made to it, the due diligence may also need to encompass construction and planning advice.
- Negotiate the sale and purchase agreement in connection with the acquisition of the property.
- Negotiate the English law banking and security documents required to be entered into in connection with the financing of the property.
- Oversee the completion process and the acquisition of the property.
(tax advice can either be provided by a law firm or an accountant)
- Prepare a tax structuring paper which sets out a proposed structure for the acquisition. The tax paper will be bespoke factoring in the client’s investment strategy and will include consideration of:
- Stamp Duty Land Tax;
- Capital Gains Tax;
- Any tax on rental receipts;
- VAT; and
- The repatriation of profits.
- Review and negotiate any Jersey (or other offshore jurisdiction) law documents required to be entered into in connection with the financing of the property for example any account charges, subordination deeds and share pledges.
- Prepare corporate authorities authorising entry into the banking and security documents required to be entered into in connection with the financing.
- Issue a legal opinion in favour of the funding bank confirming the offshore entities have the capacity and authority to enter into the banking and security documents.
- Establish Special Purpose Vehicles (SPVs). There would usually be two; a “PropCo” that owns the property and a “HoldCo” which is the sole owner of PropCo.
- Provide administration and accounting, company secretarial and director services for each of HoldCo and PropCo. This will include:
- Providing two corporate directors for each of HoldCo and PropCo;
- Acting as company secretary;
- Maintaining all statutory records and providing a registered office;
- Establishing and operating bank accounts; and
- Maintaining the accounts and preparing quarterly and annual reports.
WHY APPOINT ADIB AS YOUR REAL ESTATE ADVISOR?
As your real estate advisor, we would:
- Brief you on market trends and conditions
- Assist with defining Shari’a compliant real estate investment goals and objectives
- Act on your behalf in the UK (as designated client representative) engaging with investment agents in order to originate suitable real estate investment opportunities that meet your criteria and are also aligned with the banks UK real estate financing target market and risk acceptance criteria
- Undertake building inspections and analyse property information
- Preparation of an acquisition report with recommendations on bidding strategy
- Prepare bid documentation, negotiate heads of terms and oversee the transaction to completion
- Coordinate with the ADIB financing team
- Post transaction advice including arranging for proposals from property managing agents
STRUCTURING A UK REAL ESTATE PURCHASE
If you are considering purchasing a commercial real estate asset in the UK we strongly recommend that as a first step you engage a suitably qualified lawyer so they can discuss your specific circumstances and objectives and advise you accordingly in respect of structuring the transaction and tax.
In real estate transactions, quite often a special purpose vehicle (“SPV”) will be set up specifically to purchase the property asset. They are created for a limited purpose free from pre-existing obligations and debts and to “ring fence” the investor’s assets and liabilities; they can be registered in England and Wales or overseas.
Overseas SPVs have certain benefits, usually tax driven, e.g. a Jersey SPV:
- Lower rate of income tax on rental profits (currently 20%).
- No capital gains tax on sale of investment properties.
- No capital duty payable on the issue of either shares or debt securities.
- No stamp duty land tax (SDLT) payable on the shares in an overseas SPV holdings property in England or Wales.
EXECUTING A UK PROPERTY PURCHASE
- Once a suitable property is identified your adviser will submit a written offer outlining the terms and conditions of the offer. The offer will be subject to contract and hence not legally binding.
- In order to enhance credibility of the offer it should include confirmation that funds are in place to execute the transaction or ADIB financing has been agreed in principal. ADIB can support by providing you with an Indicative Term Sheet which is subject to credit approval.
- If the offer is accepted by the vendor it is usual for the purchaser to be given an exclusivity period in order to complete initial due diligence and arrange financing, prior to the sale contract being exchanged.
The actual process of acquisition is in three stages:-
- Pre-Exchange due diligence
- Exchange of a sale and purchase contract and
- Completion of legal transfer and payment of the purchase price.
- Your lawyer will carry out searches and raise enquiries with the seller, including a review of the occupational leases to ensure the rental income and rent review provisions are verified along with repairing obligations and other factors impacting value.
- The seller will deduce title and answer standard form and specific enquiries about the property.
- In parallel ADIB will take forward the credit application for financing the property purchase. If approved, the terms and conditions will be confirmed. Standard conditions precedent to completion will include:-
- Satisfactory Technical Surveys including a focus on Building Condition, Mechanical and Electrical Equipment and an Environmental Assessment.
- Satisfactory Valuation Report – this will confirm the market value of the property, for secured financing purposes, in accordance with guidelines produced by the Royal Institution of Chartered Surveyors.
- Satisfactory Legal Title – The bank will appoint its own lawyers to review all legal documentation to highlight whether there are issues which could negatively impact the market value of the asset and thus weaken the banks security position.
EXCHANGE OF CONTRACTS (SALE & PURCHASE)
- The contract between seller of the property and the purchaser will be negotiated and any special conditions revealed by the due diligence included. Upon signing (“exchange”) the parties become legally bound to complete the purchase (subject to any conditions). This means neither party may terminate without incurring liability. A deposit is typically payable on exchange; usually up to 10% of the purchase price.
- Occurs on a date agreed between the seller and the buyer in the sale contract. Often there is a gap of up to 20 days so that the buyer can put it’s funding in place. The balance of the purchase price is paid on completion.