29322 ta InvestDistress:ta 26/02/2009 13:16 Page 3 Investing in Distressed Real Estate Opportunities 29322 ta InvestDistress:ta 26/02/2009 13:16 Page 4 Realising opportunities in challenging times In this challenging economic environment, recognising and capitalising on the next opportunity is crucial. The growth of distressed real estate situations may offer valuable investment opportunities in real property or real estate backed debt. However as real estate backed debt structures have become complex and highly specialised, how do you make the right investment, understand and manage the risks and structure investments efficiently? Deloitte has a deep understanding of the real estate backed debt market. We have teams of specialists who can assist you to assess when and how to invest in distressed real estate backed debt opportunities. 29322 ta InvestDistress:ta 26/02/2009 13:16 Page 5 When? How to identify where opportunity lies Our global debt advisory, structured finance, reorganisation services, tax and audit practices have extensive knowledge and expertise in the real estate and real estate backed debt arenas. Our practical experience means we are well placed to give commercial insight into where and how value may be created. We have in-depth knowledge of the full spectrum of debt structures from the straightforward to the highly complex. We have significant experience in the following specific areas: Understanding the lender We have a good understanding of the mindset of banks, institutional and private lenders in the current environment. We know how each class of lender is dealing with its own liquidity and regulatory pressures and the impact this has on their decision making process in respect of potential divestments. Understanding the market We have in-depth expertise in all segments of the global debt markets, from straightforward bilateral bank facilities to complex securitised structures, and the global real estate market. Understanding the product We can advise on the performance of the underlying real estate, where the value will break in more complex note issuances, and how value can be realised. Understanding the borrower We have extensive real estate borrower-side experience, allowing us to advise on the key business issues facing the borrowers who are ultimately servicing the debt. Realising the opportunity We have extensive experience advising on and executing solutions for existing debt structures, including complex multi-country and multi-lender scenarios. 29322 ta InvestDistress:ta 26/02/2009 13:16 Page 6 How? Managing risk and efficient structuring Managing risk Once the opportunity has been identified, it is critical to understand and manage the associated risks. Distressed real estate backed debt structures have unique issues and investing in such structures necessitates an understanding of specific areas including: Efficient structuring It is important to implement a structure which delivers the desired commercial outcome and tax efficient returns. • the objectives of all stakeholders in complex debt structures; • origination and underwriting standards and procedures; • valuation assumptions and methodologies; • the credit rating process; • the associated financial risks; • withholding and historic tax risks, often across multiple jurisdictions; • borrower viability and borrower level tax risks; and • how to account for such investments. • consideration of a tax efficient acquisition structure which meets investor, vendor and borrower requirements; • minimising any withholding tax leakage and tax on gains; and • minimising VAT costs. Structuring for investment in real estate backed debt would include: Deloitte have established global teams who have technical and industrial expertise in real estate structured finance. We have recently provided transaction support to a number of clients on commercial loan acquisitions of a variety of real estate backed portfolios, including performing and non-performing loans. 29322 ta InvestDistress:ta 26/02/2009 13:16 Page 1 29322 ta InvestDistress:ta 26/02/2009 13:16 Page 2 Who? Key Deloitte contacts Debt advisory Reorganisation services & debt structuring Financial and tax due diligence/structuring Fenton Burgin +44 (0) 20 7303 3986 [email protected] Neville Kahn +44 (0) 20 7007 3017 [email protected] David Stark +44 (0) 20 7007 2536 [email protected] Mark Goodey +44 (0) 20 7007 0851 [email protected] Lisa McNulty +44 (0) 20 7007 2979 [email protected] James Douglas +44 (0) 20 7007 4380 [email protected] Nigel Shilton +44 (0) 20 7007 7934 [email protected] Robert Young +44 (0) 20 7007 2571 [email protected] Dominic Graham +44 (0) 20 7007 2043 [email protected] Philip Mills +44 (0) 20 7007 8602 [email protected] Deloitte refers to one or more of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTT and its member firms. Deloitte LLP is the United Kingdom member firm of DTT. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. © 2009 Deloitte LLP. All rights reserved. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198. 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