The biggest inward investment challenges in the UK real estate market
2019 was a good year for foreign direct investment (FDI) into the UK but for the first time since 1997, the UK missed out on first place in the European rankings for total inbound FDI, with the top spot just going to France. Nevertheless, research suggests that investors feel FDI projects in the UK are well-placed to recover from the impact of Covid-19, and that the UK is likely to outperform the global market in attracting post-pandemic investment.
With the Pound Sterling competitively priced, greater political stability compared to recent years, together with an undersupply of high quality office, residential (including high quality rental), student accommodation, extra-care/assisted living/care home, and logistics assets as a result of wider structural trends, the UK remains a highly attractive place to invest. The prospect for strong long term returns compares favourably with the bonds market. Even during lock-down 2020, there was a surge in UK headquartered (HQ) projects by around 240% on the previous year (Source: Ernst & Young, 28 May 2020).
Although the Covid-19 vaccine is being rolled out globally and we are coming out of lockdown, restrictions on certain international travel continue, making inspections and negotiations by potential buyers difficult. Nevertheless, construction continues and virtual viewings, building surveys and valuations are permitted and can be easily arranged. We can attend inspections with surveyors and agents to identify any legal issues which may impact the development, letting, sale or funding of the asset and then work closely with you and your other professional advisors to resolve them.
Health and environmental impact
Environmental, Social and Governance (ESG) factors are increasingly important to end users and, therefore, to investors. Part of the due diligence we carry out on investors’ behalf includes looking at the asset’s safety and green credentials. Generally, the greener the property, the greater the long term value and savings to investors.
Although interest rates are low, and loan-to-value (LTV) borrowing has increased, the uncertainty posed by Covid-19 and possible future strains and lockdowns creates tenant uncertainty and makes asset valuation more difficult. Market uncertainty provisos on valuations can present problems. We work with banks and valuers to ensure timely valuations to fit the transactional timeframe in order to secure lending. This may be between exchange and completion. As part of our due diligence for investors, we also check that occupational leases are institutionally acceptable to lenders, and spot any other impediments to funding, such as rights of light issues, title defects (restrictive covenants), and rights of access, to name but a few. We flag up any issues and proffer solutions to them.
Overseas funders and buyers often also require legal opinions on the opposite party and vice versa. Legal opinions generally confirm that the foreign company is in good standing and has the capacity to enter into and be bound by the transaction documents in question. By instructing reputable lawyers ahead of time in the relevant jurisdiction, we ensure that the company searches are commissioned and the legal opinion is delivered in a timely fashion on the day that the transaction is due to exchange and/or complete. We regularly liaise with lawyers in different jurisdictions to source various legal opinions and we can, of course, provide English legal opinions when required.
When government relief schemes come to an end, more Company Voluntary Arrangements (CVAs) are likely to arise, increasing the trend towards lease re-gears and variations, particularly mutual break rights and a move towards turnover rents and rent concessions for mandatory Covid shutdown measures. Investors, as landlords, will also want to address rent arrears, debt recovery and, if necessary, securing vacant possession. There is currently a moratorium on forfeiting commercial leases, which is in place until 30 June 2021, and may be extended further. Our dispute resolution and litigation colleagues advise on the best strategy to manage rent recovery and forfeiture of leases.
There are still many tax issues to consider for overseas and domestic investors and we can advise on the most tax efficient structure to minimise the transactional taxes such as Stamp Duty Land Tax (SDLT) and VAT.
Whether you are an overseas CEO looking to head up a new HQ in the UK or an investor looking to spend just part of the year in the UK, the immigration regime is an evolving landscape post-Brexit and our employment and immigration lawyers regularly advise investors on the framework to help you achieve your goals.
An integrated team of business advisors
With offices in London, Bath, Marlborough, Swindon and Oxford and a large team of dedicated real estate lawyers focusing on the full life-cycle of any real estate project, RWK Goodman has a deep understanding of the commercial challenges you face as well as the sectors you operate in. We offer creative solutions to complex issues with highly competitive fee structures that provide transparency, predictability and efficiency for clients.