(First publication September, 2017) The Grand Duchy of Luxembourg offers a lot of possibilities for real estate investments for both inside Luxembourg and transactions in Europe or worldwide. With a well-known first-class existing legal framework and a high standard of protection of investors the Luxembourg real estate market achieved an amount of approximately 1.1 billion Euros in 2015 and 1.35 billion Euros in 2016. The net assets invested in real estate funds continue to grow over the years and the flow of transactions exceeded the billion Euros for the third consecutive time. All these features position the Grand Duchy on the top of attractive places to structure reals estate investments in Europe and worldwide.
Luxembourg real estate vehicles The Luxembourgish law provides a big and diversified toolkit of regulated and unregulated entities that offers solutions for all specific needs regarding a real estate investment. The choice of the concrete vehicle(s) will then depend on the specific needs of the investors (deriving from legal requirements of their home countries, including tax requirements), the structure, size and type of the property and its applicable legislation. Regulated Vehicles supervised by the CSSF.
On one hand there is the panoply of regulated entities that are under the prudential supervision of the Luxembourg Commission de Surveillance du Secteur Financier, hereafter CSSF: one of the most commonly used regulated entities is the so-called SICAV, i.e. an investment company with variable capital. Main characteristic of such SICAV is that its share capital is always equal to its net assets and so it does not require formalities for increases and decreases in capital.
However, there also exists an investment company with fixed capital (the “SICAF”), that for specific reasons can be useful in certain real estate structures.
Another fund structure very often used for real estate transactions is the so-called “FCP”, the common fund, an entity constituted in contractual form, and must thus be managed by a management company. Main characteristic of this fund is that it constitutes a co-proprietorship whose joint owners are only liable up to the amount they have contributed and whose ownership rights are represented by units.
In order to complete the picture, the Luxembourg Law offers the specialized investment fund (SIF) who is recognized for its flexibility regarding to the investment policy as well as for its regulatory regime and publication requirements.
The Luxembourg investment Law then allows to use these structures in combination, i.e. for example usually a SIF will be in form of a “SICAV-SIF” or “FCP-SIF”.
Furthermore, for some real estate transactions showing a special high risk, due to their location or other reasons, the investment company in risk capital (SICAR) can also be used to structure such investment.
From a corporate law perspective, all the aforementioned vehicles may take in principle one of the six corporate forms, i.e. SARL (private limited liability company), SA (public limited liability company), SCA (partnership limited by shares), SCSp (special limited partnership), or SCS (limited partnership). In concreto this means that a typical reals estate fund would be a “SCA SICAV-SIF”. These entities may be set up as a single fund or as an umbrella fund consisting of multiple compartments which may have unlimited number of share classes. These compartments allow a segregation of the assets, including its accounting records, and the rights of investors and creditors concerning a compartment, or which have arisen in connection with the creation, operation or liquidation of that compartment, are limited to the assets of that compartment.
Finally, the Luxembourg securitisation Law, due to its broad scope, might also be useful for the structuring of real estate transaction. Please note that the securitisation vehicles can be constituted as regulated or unregulated entity, as fund or company, and it may be set up, once again in one of the before-mentioned corporate forms including a compartment structure.
Unregulated vehicles on the other hand, it is also true that a huge number of real estate investments are structured via unregulated entities, mostly as so-called SOPARFIs. The main purpose of a SOPARFI (Société en participations financières) is to hold investments in other entities. A SOPARFI can once again be incorporated in all types of commercial company and are governed by the Luxembourg Law on commercial companies. Due to the special flexibility of the Luxembourg SARL (private limited liability company), the biggest part of these SOPARFIs are constituted in this form.
Some features of the Luxembourg real estate market Apart from the use of Luxembourg for structuring of real estate in Europa and worldwide, the Luxembourg real estate market itself has become more and more interesting for internal and external investors.
In 2016, the biggest operation was realised last December with the sale of a building for between 240 and 270 million Euros for a surface of 51.000 square meters. Besides that, 420.000 sqm in Place de l’Etoile, located in the city center, valued at about 150 million Euros were bought by Abu Dhabi Investment Authority in April 2016. And only from January to July 2017, approximately another 490 million Euros have been invested in Luxembourg real estate due to its interesting and lucrative perspectives.
Our experiences and last transactions Kaufhold & Reveillaud can provide you with assistance and guidance for the structuring of real estate transactions or via regulated or via unregulated vehicles. Only some weeks ago, in August 2017, we closed a real estate transaction concerning a new office building of 14.000 sqm of a volume of 130 million Euros (thus not even included in the above-cited figure of almost 0.5 bn Euros of the first semester 2017!). This transaction was structured as a share deal with a Luxembourg SARL.
Our services included the performance of an extensive legal due diligence of the before holding company and the asset, i.e. review of all relevant authorisations and permits from an administrative and zoning law perspective plus all aspects of corporate law, as well as the negotiation of the respective share purchase agreement. Kaufhold & Réveillaud has further performed in the course of the last 12 months several due diligences of this type for other real estate transactions, the biggest reaching a volume of 25 and 160 million Euros.
Finally, we would like to add that apart from the share deals, we are also dealing with “brick deals” of Luxembourg Law. Such transactions are then more demanding with respect to the review of the administrative law aspects (permits and authorisations) and can adopt the form of a notarial purchase agreement or of a purchase agreement of a building before completion (“vente en état futur d’achèvement” – short “VEFA”) also made in front of a Luxembourg notary. Such VEFA shows some particularities in terms of formalities and content, and requires individual legal assistance for investors from outside Luxembourg. We are currently dealing with such VEFA for a building still to be erected on an emblematic spot of the center of Luxembourg-city of approximately 1.400 square meters and of a volume of 20 million Euros.
For further information, please contact Kaufhold & Réveillaud, Avocats:
Sabrina Salvador, Partner – sa.s@kr-legal.lu
Rüdiger Sailer Partner, Counsel -r.s@kr-legal.lu
T: +352 444 222 1