INREV’s director of public affairs Jeff Rupp writes his views in PropertyEU today on the continued chaos of UK Brexit talks. In an article which readers can read in its entirety below, Rupp says as early as 2017 INREV issued a statement outlining the steps investors and fund managers would require negotiators to take to ensure an orderly departure.

However, he laments, ‘Unfortunately, it seems all we can be sure of is that an orderly withdrawal that prioritises the needs of either investors or wider business security is a ship that has long since sailed.’

He continues, ‘Fund managers and investors have worked hard to protect the industry against the impact of a disorderly Brexit. This reflects their commitment to ensuring that the hundreds of billions of euros invested in real estate investment are not put at risk, and also that the sector can continue to support the global economy.

‘Of course, with so much uncertainty still surrounding the Brexit process, many unanswered questions remain for the real estate industry. For now, all we can do is urge decision makers to prioritise business continuity in respect of the final outcome.’

How has the real estate industry responded to Brexit uncertainty?

By Jeff Rupp, Director of Public Affairs, INREV

'We’re now two years on from the UK triggering article 50, and the 29th March has come and gone yet the final outcome of the negotiations is as uncertain as ever. Unfortunately, it seems all we can be sure of is that an orderly withdrawal that prioritises the needs of either investors or wider business security is a ship that has long since sailed.

Instead, assuming Brexit does happen, which at the time of writing is not clear, the UK is facing a disorderly exit, which could well have implications that may not be fully understood.

A disorderly Brexit could destabilise and reduce the returns on real estate investments flowing between the UK and Europe. One consequence of this would likely be on pension and insurance funds on both sides of the Channel. On average they allocate 10-12% of their total investment capital to real estate, meaning an adverse impact would hit the payment of pensions and life assurances to ordinary citizens.

More broadly, the commercial real estate sector employs four million people, and contributed €385 bn to the European economy in 2017, representing about 2.8% of the total economy. Indeed, the real estate industry in Europe is nearly the same size as the automotive manufacturing industry and telecommunications sectors combined. The impact of disrupting investments on this scale would also, therefore, be felt on the wider economy, growth and jobs.

As early as 2017 we issued a statement outlining the steps investors and fund managers would require negotiators to take to ensure an orderly departure. We’ve continued to work alongside our members and other industry associations to make this case to policy makers in Brussels and London.

There are three main asks that underpin this work. Firstly, maintaining market access between the UK and the EU; secondly, avoiding new barriers to the flow of skills, capital and investment between the two; and thirdly, protecting the legitimate expectations and rights acquired through the existing legal framework. It is also imperative to maintain the momentum on existing political initiatives as resources are drawn into the renegotiation, ensuring a transparent and open process which allows investors sufficient time to adapt, and securing the skills base that is necessary to ensure the growth and competitiveness of the sector.

Fortunately, even in the absence of any real clarity from politicians, the real estate industry has pressed ahead with its preparations. We have advised our members to not be complacent about the potential impact of Brexit and factor in the possibility of a no-deal. We know that investors and fund managers alike have worked hard to ensure that any potential impact is kept to a minimum and we’re therefore optimistic that non-listed real estate funds will continue to operate, regardless of the final outcome of the Brexit process.

For fund managers in the UK, this has often meant setting up parallel structures in a remaining-27 EU Member State with AIFM authorisations and transferring some UK-domiciled funds to them. This allows the funds to be managed and marketed in the EU with an AIFMD passport post-Brexit. In cases where UK managers already have existing EU-based AIFMs, this is possible simply by transferring UK-domiciled funds to their EU affiliates. UK-based managers that choose not to use EU AIFMs can market funds through private placement regime rules after Brexit, as can UK-domiciled placement agents.

For managers in continental Europe who are looking to continue operating in the UK post-Brexit, the process is fortunately much simpler. They can obtain authority from the UK FCA with relative ease, and they then have two years to ensure the funds become domiciled in the UK.

Fund managers and investors have worked hard to protect the industry against the impact of a disorderly Brexit. This reflects their commitment to ensuring that the hundreds of billions of euros invested in real estate investment are not put at risk, and also that the sector can continue to support the global economy.

Of course, with so much uncertainty still surrounding the Brexit process, many unanswered questions remain for the real estate industry. For now, all we can do is urge decision makers to prioritise business continuity in respect of the final outcome.'