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Understanding Single Purpose Entities in Commercial Property: Insights and Implications

Explore the role of Single Purpose Entities (SPEs) in commercial property transactions, including methodology, investor utilization, and preliminary conclusions.

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Understanding Single Purpose Entities in Commercial Property: Insights and Implications

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

  2. Introduction to SPEs • Methodology • Why do investors utilize SPEs? • Howdo investors utilize SPEs? • Whatis the magnitude of SPE transactions? • Preliminary conclusions • Content Work in progress

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

  4. Company A • Introduction to SPEs Ownership Registered as company transfer (share deal) Ownership Company X Transfer Company B Single PurposeEntity

  5. 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.

  6. 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

  7. 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

  8. 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

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

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

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

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

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

  14. 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.

  15. 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.

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