Real Estate 2017

The Real Estate guide provides expert legal commentary on the key issues for businesses involved in real estate matters. The guide covers the important developments in the most significant jurisdictions.

Last Updated April 18, 2017

Jay Epstien is a partner and the co-chair of DLA Piper’s global real estate practice. Jay Epstien represents local and national owners, developers and users in all aspects of real estate transactions involving urban office buildings, shopping centres and mixed use residential projects. He has been the lead lawyer on many of the largest office leases in Metropolitan Washington, DC, representing both landlords and tenants, including numerous law firms that have sought his counsel. He has represented major corporations in corporate real estate facilities matters throughout the United States, involving corporate relocations and dispositions of significant existing facilities. In addition to his real estate law practice, Jay has been responsible for the management of DLA Piper’s 175-lawyer US real estate practice and co-management of the 500-lawyer global real estate practice for the past ten years. One of his principal focuses is on global integration to provide our clients with the greatest value in legal services. He is a Fellow, of the American College of Real Estate Lawyers and President Elect (2017).

John Sullivan is the chair of DLA Piper’s US real estate practice. He has a broad-ranging practice that encompasses all aspects of commercial real estate, with a particular emphasis representing public and private pension plans, opportunity funds, investment advisers and non-US investors in equity, debt, hybrid and joint venture transactions throughout North America. John is very familiar with UBTI, VCOC and REOC issues faced by tax exempt and benefit plan investors and with the tax and regulatory issues faced by non-US investors. A significant portion of John's practice involves representing institutional investors in real estate joint ventures. He has significant experience representing non-US investors in their US real estate investments. He also has substantial experience representing both lenders and borrowers in complex real estate loan workouts and restructurings throughout the US. In addition to being chair of the US real estate practice, John is a member of DLA Piper's US Executive, and Policy Committees. John was previously a director at one of the country's leading real estate investment advisory firms, where he was responsible for acquisitions, sales and financing. During the early 1990s, he was in charge of all workouts and restructurings for this firm. John's combination of business and legal experience is highly valued by his clients.

Jarrod Matteson advises lender, borrower, purchaser, seller, landlord and tenant clients in their commercial real estate financing, conveyancing and leasing transactions. In January 2016, Jarrod was promoted to partner at DLA Piper. In 2015, Jarrod was named one of 25 participants in DLA Piper’s global real estate practice’s Future Leaders Program. During law school, Jarrod worked with the Massachusetts Law Reform Institute, focusing on the effectiveness of the Low Income Housing Tax Credit as a means to create housing for low-income families in Massachusetts. Jarrod also worked at the Suffolk County Superior Court for the Honorable Carol S Ball and at the Criminal Bureau of the Massachusetts Attorney General's Office. He is a member of the Urban Land Institute.

Angela Castro has experience with real estate acquisitions and dispositions, development and financing, including representing investors in joint venture transactions for a variety of asset types. Angela also represents commercial landlords and tenants in leasing for office, retail and industrial properties including in the life sciences and research space. In January 2016, Angela was promoted to partner at DLA Piper. She is a member of the Organization of Commercial Real Estate Women, Silicon Valley Chapter, the California Bar Association and Wyoming Bar.

DLA Piper LLP (US) has a market-leading real estate offering, an international multidisciplinary team of lawyers that can serve clients' needs across the real estate sector. The firm has over 500 real estate lawyers operating in more than 30 countries across the world. Lawyers are able to serve clients in key real estate markets with strongly established teams in Europe, Asia Pacific, the Middle East, Africa and the Americas. DLA Piper works with clients at all stages of the real estate life-cycle including planning, acquiring, finding, developing, leasing, completing, trading and divesting. The team offers the following services: financing; acquisitions and disposals, asset management, construction, development, planning, zoning and environmental, joint ventures, fund formation, restructuring, tax structuring, forward funding and disputes. The team works alongside investors, lenders, developers and managers in every aspect of their real estate activities, advising on matters from fund formation and establishing investment platforms for clients moving into new markets for the first time to cross-border portfolio acquisitions and restructuring loan facilities secured on assets in multiple jurisdictions.

This introduction was written by Jay Epstien with contributions from Dale Ann Reiss, former Chair of the Ernst & Young Global Real Estate Practice.

Real estate is affected by global economics, regulatory issues, capital flows and interest rates. Probably more so than any other industry, it is the confluence of supply, demand, liquidity and capital markets.


A major change to real estate lending has been created by Basel III, which has reduced the amount of lending by banks to the real estate sector by imposing higher risk capital requirements. Under Basel III, the classification of loans as High Volatility in Commercial Real Estate (HVCRE) has been a major factor in reducing construction, real estate development and acquisition lending by commercial banks, as it requires banks to reserve more capital for each dollar lent, thus reducing the amount of dollars available for lending. At the same time, the volume of Commercial Mortgage Backed Securities (CMBS) has been reduced as a result of the Dodd-Frank requirement to retain a 5% portion (horizontal or vertical) of the loan by the initiating party. Additional retained risk requirements are under discussion which could further affect this situation. In 2016, total CMBS volume in the US was down 25% compared to the prior years.

On the positive side, the Protecting Americans from Tax Hikes (PATH) Act of 2015 has enhanced the ability of some very significant foreign capital sources to invest in US real estate through changes to the Foreign Investment In Real Property Tax Act of 1980 (FIRPTA). The high level changes created by the PATH Act include the following:

  • Doubling the percentage of publicly traded REIT stock that can be held by a foreign shareholder without incurring FIRPTA withholding tax upon the disposition of such stock, from 5% to 10%.
  • Similarly, treating capital gain dividends from a publicly traded REIT to a 10% or less shareholder (this threshold was 5% prior to the PATH Act) as ordinary REIT dividends − with such dividends possibly eligible for a favourable withholding rate under an applicable treaty, thus broadening the appeal for foreign investment in US public REITs.
  • Exempting certain foreign pension funds from FIRPTA tax and withholding. This new exemption for “qualified foreign pension funds” applies both to the disposition of US real estate property interests (such as public or private REIT shares) and to capital gain distributions from public and private REITs. The new exemption generally enables a qualified foreign pension fund to indirectly hold a US real property interest (USRPI) through a partnership vehicle, provided there is still a REIT between such partnership and the USRPI. This new FIRPTA exemption should provide additional opportunities for many foreign pension funds to invest in US real property directly or indirectly through REITs.
  • Clarifying the rules that determine whether a REIT (public or private) is “domestically controlled”, in a generally favourable manner.
  • Creating a new class of foreign investors called “qualified shareholders”. Such qualified shareholders are generally structured similarly to US public REITs (eg, an Australian listed property trust), and the new rules will in many cases exempt such qualified shareholders from FIRPTA taxes with regard to their investments in public and private REITs.

With all of the positive changes under the PATH Act, it is important to note that the law includes an increase from 10% to 15% in the rate of FIRPTA withholding on USRPI dispositions, but such withholding tax should generally offset the net income tax due from the non-US investor upon filing a US tax return.

Another factor that should increase investment in real estate is the creation of a new Real Estate Sector under the Global Industry Classification Standard (GICS) structure, effective August 31, 2016. Real Estate is being moved from the Financial Sector and promoted to its own sector − the “Equity Real Estate Investment Trust”. Mortgage REITs will remain in the Financial Sector under a newly created industry and sub-industry group called “Mortgage REITs”. For entities and investors looking to balance their portfolios, this could be a significant change on the road to achieving the desired levels of diversity across all sectors, and is recognition of the fact that, globally, real estate has increasingly become a public vehicle, either as a C-corp or, more commonly, as REITs.

Finally, while it may be too early to assess the impact of the recent BREXIT vote, the projected lengthy negotiations regarding the actual implementation of BREXIT will create a degree of uncertainty in the European and UK economies and, as a result, push some investors to the sidelines in Europe and the UK. The US commercial real estate market could then see an influx of capital from the UK and other countries whose investors might re-direct their investment focus.


The Financial Accounting Standards Board (FASB) recently issued a new ruling requiring US businesses to disclose lease obligations for real estate and other major assets directly on the balance sheet by 2019. The ruling was designed to ensure transparency and end off-balance sheet accounting for major liabilities. According to FASB, $2 trillion of debt will be added to company balance sheets around the world in the next five years. The new regulations will affect how real estate is accounted for, as well as debt covenants with banks, and may result in a shift to lease terms of less than one year in duration (office sharing) as well as having an impact on lease-versus-buy decisions. In order to comply by 2019, companies will need to begin recasting accounting treatment of lease obligations for 2017 and 2018, as well as reviewing their bank covenants. It is anticipated that these changes will have a wide impact on both lessees and lessors.

Another important regulatory scheme that affects capital flows is the use by numerous countries of visa programmes to attract high-dollar investment, most frequently in real estate. In the US, the EB-5 programme enables immigrants to make a capital investment of $500,000 or $1 million (depending on the exact location of the project). If the project can directly create 10 new, full-time jobs per immigrant investor, the immigrant and his or her family can secure a US green card. A recent paper identified 27 large-scale US projects where 11,200 immigrants invested (or committed to invest) $5.6 billion. Close to 20 other countries around the world have similar programmes in place, including Portugal, Ireland, Spain and several in the Caribbean. However, these programmes (including the US EB-5 programme) are under constant scrutiny regarding their continuation and the satisfaction of their objectives.

Another topic of interest in the regulatory space is the attempt to deal with tax inversions for US corporations. Proposed new tax regulations (under IRC Section 385) may affect real estate fund and REIT structures significantly. The pending regulations would affect inter-company debt, with significant implications for domestic REITs through their taxable REIT subsidiaries as well as those with international investments.

Capital Flows

As a result of continued low interest rates around the world, public REITs, pension funds, sovereign wealth funds and other capital sources have increased allocations to real estate. In addition to direct investment in real estate, the increased sophistication of the debt market has brought more money into varying aspects of real estate debt, either through CMBS or through traditional or non-traditional (shadow) lenders. Although the popular press discusses players exiting the business (eg, GE and many banks), other investors continue to view real estate as a safe and secure vehicle that also acts to diversify their investment portfolios.

Foreign capital continues to be drawn to CRE investments in the US and other markets for many reasons, including predictability of cash flows, transparency of market information, relative downside risk protection and liquidity. As noted above, the new FIRPTA legislation and GICs classifications should increase these institutional flows of foreign capital to the US.

However, investment by high-net-worth individuals in luxury real estate is showing signs of slowing as the strong US dollar, weakening local currencies, declining oil prices and global economic uncertainty have affected buying power and the desire of wealthy individuals to invest. These signs are visible in London, Australia, Vancouver, New York, Miami and Southern California as foreign investors have seen the value of their currencies or the ease of movement of their funds touched by various global developments (including BREXIT).

Of further potential concern are the events unfolding in China, where increasing debt and internal investment in real estate could lead to a potential rise in non-performing loans in Chinese banks and the shadow banking system. Moreover, in late 2016, China tightened its monetary policy and restrictions on capital outflows.  While these recent developments are expected to impact the global activities of Chinese investors,  China likely will continue to be a major investor in real estate, in the USA and internationally.

Global Economics and Infrastructure Investment

In addition to bricks and mortar, currency is one of the raw materials that goes into real estate, meaning real estate is particularly sensitive to the rise and fall of interest rates. Inflation and deflation have the potential to significantly affect the flow of capital. Global terrorism is also a major concern, given the relatively soft targets of malls, restaurants and hotels. Through the Terrorism Risk Insurance Act, the US seeks to help provide insurance for buildings damaged in acts of terrorism; however, the global impact of terror attacks on real estate cannot be discounted. The same applies to tourism, hospitality and infrastructure – all of which are vulnerable targets.

The world’s population is growing and the great demographic shift from rural to urban, 18- and 24-hour mega-cities is unceasing. These factors, plus the aging of extant infrastructure, the globalisation of supply chains, and changing technology are creating sweeping opportunities for both the public and private sectors. Indeed, these changing demographics demand increasing investment in infrastructure, virtually everywhere in the world – a major investment opportunity of possibly as much as $9 trillion by 2025.


Real estate is subjected to extreme differences in legal, regulatory and tax schemes across the globe. This brief overview highlights only some of the most significant issues. In the end, real estate remains local by nature and, as a result, it is of the utmost importance to consult with local counsel and other expert advisers in each jurisdiction where an investment will be made.