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Debt funds

  • The trend with regard to originating new loans has been underpinned by a re-pricing of risk in real estate finance markets and manifested by a reluctance of banks to advance more than, say, 60-75 per cent of Loan to Value in senior debt. This has created an opportunity for new providers of real estate finance to fill the so-called "equity gap" between traditional senior debt and equity.  In relation to the acquisition of distressed or non-performing loans the strategy is one of waiting for the market to rebound or, alternatively, using the loan to take control of the asset: a so-called "loan to own" approach.

  • Whilst new debt funds have been established we have also seen a broadening of the investment mandates of existing real estate funds so as to encompass either the origination of new loans or the acquisition of real estate debt. In our experience where existing funds are involved these have without exception fallen to be classified as "opportunity funds" on the fund risk curve.

  • BDO LLP and BDO International have been involved in advising on a number of debt funds and our advice has encompassed.

  • Minimising tax leakage within the core investment structure and its feeder elements. This includes consideration of withholding tax, tax on financing margins and VAT on promote, advisory and management fees.

  • Implementing hybrid financing instruments to ensure the tax efficient transmission of income and profits.

  • Ensuring compliance with any overseas regulatory provisions including, for example, the US ERISA provisions.

  • Structuring of the promote/and carry interests to management and key investors.

  • Technical accounting and reporting matters in relation to the fund structure including the approach to be followed in relation to valuation of the underlying real estate interests.

  • Advising on Sharia'h compliant fund structures.

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