THE BLOG

11
Feb

Property Authorised Investment Fund (PAIF) Conversion | 5 Reasons to convert

What are the five biggest reasons to convert an existing property fund to a property Authorised Investment Fund (PAIF)?

At North Star Corporate Finance we have unique insight and understanding of the PAIF election and the reasons for doing so (including how the PAIFs should operate).  We also have direct experience in the terms, process and conditions for the launch or conversion of existing property funds into a PAIF.

We understand the challenges and rationale commercially, operationally, legally and from a regulatory perspective.

North Star will work alongside your existing team to deliver the project efficiently and ensure the best outcomes both for the fund management and for shareholders.

In our opinion the top five reasons to consider converting to a PAIF are:

1) Tax efficiency – notably no tax on capital gains or income arising. ISA/SIPP eligibility.
2) Corporate Governance – best in class with FCA authorisation.
3) Reduced administration for UK tax exempt investors. No cashflow issues of seeking recovery of tax from HMRC.
4) Lower operating costs versus offshore structures with associated enhanced TER competitive advantage.
5) AIFMD compliance

19
Jan

Why convert to a Property Authorised Investment Fund (PAIF)?

Since the introduction of legislation by the UK government to allow open-ended investment companies to elect into  a tax-efficient  regime – Property Authorised Investment Funds or PAIFs – with benefits for both the company and its investors, until 2012 there was relatively little take up for existing funds (or investors) or those establishing new UK property funds to convert into PAIFs. This was driven by three key issues: the prevailing economic climate at the time of launch of the concept; issues with administration of tri-furcated income from PAIFs and finally general lack of understanding as to the process for conversion and the benefits associated with the conversion – which are significant. Since mid-2012 there have been a plethora of conversions across the UK real estate funds spectrum.

So what’s changed and why convert to or set up PAIF now?

The four most significant changes that have impacted appetite for PAIFs are:

Firstly, there has been a tangible change in the economic profile and expectation in the UK where funds are finally seeing renewed capital appetite for UK property (often a wider economic leading indicator) and with that comes keaner consideration of fees, structures, tax efficiency and good governance in an increasingly competitive sector.

Secondly, the pragmatic issues around the ability of fund administrators and platforms to administer the triple income streams of income on distribution to investors has slowly been relieved as service providers have begun the process of system upgrades to tackle the complications arising from tri-furcated income from PAIFs.

Thirdly following the legislative impact of AIFMD in July 2013 (with pragmatic impact by July 2014) AIFMD compliant funds (such as PAIFs) will be more easily promoted across the EU and indeed globally. Those funds that choose not to comply – together with the impact of FCA PS 13/3 – will undoubtedly struggle in the forthcoming cycle.

Finally there is now greater experience and knowledge in the process and key issues for converting to or establishing PAIF funds – legally, regulatory, tax and accounting. Such conversions are complex but the benefits associated are significant for all parties.

North Star Corporate Finance has unique experience in this niche area.

Please contact North Star Corporate Finance for further details and we’d be pleased to outline how we could work with you.

11
Apr

Re-structuring – Conversion PAIF

Re-structuring – Property Fund – Property Authorised Investment Fund – PAIF 

North Star Corporate Finance (“NSCF”) successfully advised on the launch of the first residential property (ground rent) Property Authorised Investment Fund or “PAIF”, the Freehold Income Authorised Fund, which completed in April 2013.

In September 2011, NSCF was appointed as corporate finance adviser on behalf of Alpha Real Capital LLP, a co-investing international real estate funds manager focused on value-added investing in global real estate markets.

NSCF strategically reviewed an existing real estate fund, which invested in UK ground rents, which was structured as a Baker-trust unauthorised collective investment scheme. NSCF appointed legal and tax advisers to the advisory team to augment the experience and expertise of NSCF to evaluate options for restructuring the product, given the shifting regulatory landscape.

The output of this strategic review was recommendation to convert the existing unit trust to a PAIF. NSCF implemented all aspects of the transaction and Freehold Income Authorised Fund was successfully launched on 3 April 2013.

NSCF advised on all core aspects of the transformational transaction, including:

  • STRUCTURING | NSCF provided key input into the selection and detail of the final legal and tax structure and detailed terms, balancing best practice governance rigour and investor returns with the appropriate commercial terms for the fund management team.
  • COMMERCIALThe Fund, previously named The Freehold Income Trust, was established 20 years ago to provide a secure and stable investment primarily through acquiring UK freehold property ground rents which offer an attractive income stream and capital growth prospects. The Trust has an unbroken track record of positive returns, offering annual income returns of at least 4.25%. Protecting and enhancing this track record was paramount to the NSCF service provision and NSCF undertook detailed work including assessing investor returns and TER analysis.
  • OPERATIONAL | The fund has a complex holding and operating structure – NSCF advised on all corporate aspects and implemented necessary operating arrangements following conversion.
  • TAXATION | NSCF, together with the tax advisers, assessed the tax impacts of the revised structure on the fund and investors. NSCF has excellent in depth knowledge of PAIFs (and indeed most fund structures onshore and offshore).
  • LEGAL | NSCF advised on the Scheme of Arrangement for the reconstruction (embodied in a unitholder circular) together with negotiation of all service agreements.
  • REGULATORY | NSCF advised both the Manager and Fund on all aspects of the regulatory regime, overseeing variations in regulatory permissions for the Manager and the approvals of the fund by the Financial Conduct Authority.
  • PROJECT MANAGEMENT | Overall management and implementation. Enabled significant efficiencies in terms of timeline and restructuring costs whilst ensuring significant reduction in transaction risk and ensured deliverability targets.
11
Apr

Previous Transactions

North Star have completed a broad range of corporate finance transactions. Contact North Star to discuss your specific requirements.

M&A | PRIVATE EQUITY

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Coming Soon:

▪ COMING SOON

LISTED COMPANY | REGULATED ENTITY ADVICE

Coming Soon:

▪ COMING SOON

REAL ESTATE FUNDS AND FUND MANAGEMENT

Coming Soon:

▪ COMING SOON           

 

 

11
Mar

Clients and Professional Partners

Our clients (direct or indirect by past experience) and professional partners can be seen on the below list.

Recent projects include the first UK conversion of a ground rent property fund to a PAIF. North Star provide solutions designed to deliver your objectives in a cost conscious timely manner, while materially reducing transaction associated risks.

CLIENTS PROFESSIONAL PARTNERS
Ambassador Theatre Group Ernst & Young
Pacific Investments Plc KPMG
Alpha Real Capital LLP BDO
TIME Investments Norton Rose
Alpha Real Property Investment Advisers Eversheds
Freehold Income Authorised Fund Macfarlanes
Alpha UK Multi Property Trust PLc Stevens & Bolton
Alpha Pyrenees Trust Limited Carey Olsen
Alpha Real Trust Limited Applebys
Whitbread PLC Mazars
Avis Europe PLC Kinetic Partners
Thames River Capital LLP
Pacific Real Estate Capital Partners LLP
Urban Dining Plc
Speciality Retail Group Plc
BAE SYSTEMS PLC
Cobham PLC