As stated by the Bank of England's Governor, Mark Carney, the commercial property market is one of the biggest risks to the UK economy following the recent Brexit referendum.

The second largest real estate broker by market share has identified approximately 11% of its pipeline of UK deals have been withdrawn in the immediate aftermath of the Brexit vote. But where there is risk, there is opportunity.

A number of funds are already reportedly setting aside billions of dollars of capital to fund into the UK and capitalize on post-Brexit opportunities with opportunistic investors returning to the UK looking to snap up commercial real estate property at lower prices than were considered achievable prior to the Brexit referendum result.Immediately following Brexit a domino effect swept across the commercial property market as the market reacted strongly to the unexpected referendum outcome. Around £20bn of UK property funds (through firms such as M&G, Henderson Global Investors and Standard Life) suspended trading following the referendum to allow for the orderly sale of assets and to protect the interests of investors. These funds closed their doors and halted trading, with commentators speculating that they will dispose of hundreds of millions of assets, and could end up flooring the market with billions of pounds worth of assets as investors pull their money out.

They have already begun offloading "prime" assets, which are considered easier to sell in uncertain markets (such as Henderson Global Investors' plans to sell 44 Strand, the HQ of Coutts private bank) at reportedly modest discounts with yields of say 50 basis points higher than before the Brexit vote, to provide liquidity to investors.

There are signs that the initial suspensions will be lifted with at least one fund already opening its doors to trading again.

Many commentators expect better bargains going forward as the UK real estate market, considered by many as too expensive nine months ago, re-prices in the coming weeks and months.Housing firms such as Berkeley Group, Barratt Developments and Persimmon have also seen dramatic falls in their share value (in some cases by over a third). This current fear factor and liquidity concern in the property market will most likely push interest rates down later this year and could result in a large volume of assets coming to the market at discounted prices which will be particularly attractive to overseas investors holding their funds in US dollars and other foreign currencies. This is illustrated on a small scale by the high end residential market that was previously overheated but has reportedly seen an increase in enquiries from US and Chinese investors since the referendum.

Why Brown Rudnick?

Brown Rudnick's specialist teams are able to assist their clients to make the most of this opportunity. Our real estate finance and special situations team are able to give investors an advantage over their competitors seeking to acquire distressed real estate assets and loans and secure competitive financing terms for new acquisitions or refinancings as investors take advantage and snap up assets at discounted prices. We are in a prime position to assist clients, from institutional lenders who are faced with under-performing or defaulting loans to borrowers seeking to restructure their loans and minimize their exposure or investors looking to refinance new acquisitions. Through our deep market contacts we are also in a position to access some of the flow from the funds as they sell off assets. Successful investors need to be ready to trade and act nimbly to take advantage of these opportunities.

Our real estate finance team are also able to advise on specific points in new loan documentation and the impact of Brexit on existing loans. It is anticipated that there will be few changes to loan documentation in the short term, but close attention will need to be paid to certain commercial and technical points as the date of actual Brexit draws closer, such as choice of governing law and jurisdiction, withholding tax provisions, the implications of so-called "material adverse effect" clauses (such as circumstances where such clauses may be triggered and the consequences if they are triggered) and dealing with increased regulatory costs.

In our debt advisory practice we are also seeing traditional real estate lenders take stock of the market. Many are claiming to be still open for business but looking to de-risk their lending and indicating maximum leverage available may reduce by for example 10% with a simultaneous margin increase of 20-50 bps. Their real appetite to lend has not yet been tested. Alternative debt funds are also aggressively marketing their wares as they try to capture financings which may have fallen over as a result of Brexit clauses being enacted.

About Brown Rudnick

BROWN RUDNICK LLP, an international law firm with offices in the United States and Europe, represents clients from around the world in high-stakes litigation, international arbitration and complex business transactions. Clients include public and private corporations, multinational Fortune 100 businesses and start-up enterprises. The Firm also represents investors, as well as official and ad hoc creditors’ committees in today’s largest corporate restructurings, both domestically and abroad. Founded more than 60 years ago, Brown Rudnick has over 230 lawyers providing advice and services across key areas of the law. Beyond the United States, the Firm regularly serves clients in Europe, the Middle East, North Africa, the Caribbean and Latin America. With its Brown Rudnick Center for the Public Interest, the Firm has created an innovative model combining its pro bono, charitable giving and community volunteer efforts.

In the blur of mega firms, Brown Rudnick stands out as a “global boutique” and has in place a multi-disciplinary, international Brexit Team. We are monitoring and analysing the consequences and considerations for businesses and are ready to advise on the potential legal implications of Brexit. The Brown Rudnick Brexit Team is available to advise on the issues across a broad range of sectors within our areas of expertise.  If you have any questions please call your usual contact at Brown Rudnick or one of the following lawyers: 

FOR QUESTIONS OR MORE INFORMATION, PLEASE CONTACT:

Tuvi Keinan

P: +44.20.7851.6026

F: +44.20.7851.6100

Omega Poole

P: +44.20.7851.6108

F: +44.20.7851.6100

Elena Rey-Sabinina

P: +44.20.7851.6101

F: +44.20.7851.6100

Mark A. Dorff

P: +44.20.7851.6005

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Nicholas Vasquez

P: +44.20.7851.6057

F: +44.20.7851.6100

Tracy Fisher

P: +44.20.7851.6015

F: +44.20.7851.6100