Single Purpose Entities and their role in Commercial Property Price Indicators Farley Ishaak, Ron van Schie & Jan de Haan Luxembourg, January 20th 2019

Work in progress Content Introduction to SPEs Methodology Why do investors utilize SPEs? How do investors utilize SPEs? What is the magnitude of SPE transactions? Preliminary conclusions Work in progress

Registered as property transfer Introduction to SPEs Company A Ownership Transfer Registered as property transfer (asset deal) Company B

Registered as company transfer Introduction to SPEs Company A Ownership Company X Registered as company transfer (share deal) Transfer Company B Single Purpose Entity

Introduction to SPEs Definition: “An SPE refers to a legal entity that is created to satisfy a specific purpose (holding real estate)” (Seligman & Stein, 2004; Rixon, 2012; Arden, Keller & Lewis, 2017) Should share deals be considered in scope of a CPPI? It would seem logical that entities engaging in the same activities, should be treated essentially the same.

Introduction to SPEs Interchangeable terms: Special Purpose Entity Single Asset Entity Special Purpose Vehicle Similar terms: Straw corporation Nominee corporation Bankruptcy Remote Entity Bankruptcy Proof Entity

Methodology Research in progress… Why and how do investors utilize SPEs? > Literature review > Expert interviews What is the magnitude of SPE transactions? > Data research: Chamber of Commerce, Land Registry Office, Tax authority and Real estate consultancies

Why do investors utilize SPEs? Legal → SPEs are formed to reallocate liabilities (obstacles to bankruptcy) Risk considerations buyer: depends on organizational complexity Tax → SPE transactions may or may not be subject to tax. Financial considerations buyer and seller: depends on applicable income and transfer tax regulations Privacy → SPEs contribute to an owners anonymity Image considerations buyer and seller: depends on buyers/sellers anonymity preferences

How do investors utilize SPEs? Company A Ownership Company X Transfer Company B Should share deals be considered in scope of a CPPI?

How do investors utilize SPEs? Company A Ownership Transfer Company W Company X Company Y Company Z Company B Should share deals be considered in scope of a CPPI?

How do investors utilize SPEs? Company B Company A Ownership Company X Company C Company D Company E 25% Transfer Should share deals be considered in scope of a CPPI?

How do investors utilize SPEs? Multipurpose Entity Company A SPE Ownership Company X Transfer Transfer back Company B   Non real estate assets Should share deals be considered in scope of a CPPI?

How do investors utilize SPEs? To what extent should we consider share deals as part of a CPPI? None All Legal perspective Only asset deals Tax authority perspective Defined set of share deals Economic perspective All share deals

Preliminary conclusions Implications Incoherence between countries due to differences in legislation/tax regulations. Possible structural breaks in time series. There are complex share deal constructions that should probably not be included in a CPPI. The in- or exclusion of share deals could differ between data sources.

Preliminary conclusions The way forward There is a need to determine and harmonize the scope of a commercial property transaction. We should eventually come up with clear and practically feasible thresholds for considering an event as a commercial property transaction.