The Jersey shore has never been more important to London.
It is estimated that around a quarter of all London real estate investment has a link to the island of Jersey, through partnerships, unit trusts or special purpose vehicles. That’s about £4.5bn a year – no small sum.
Today Jersey is the go-to offshore destination for new entrants to London real estate. Jersey-based projects stretch from monsters like The Shard, SE1, to the latest Malaysian-backed mixed development at Shoreditch (see box, p111).
The volume of funds managed from Jersey has been growing. Total bank deposits amount to £139bn, with about half coming from outside the UK and its associated jurisdictions. The largest contributors are Europe outside the EU – which means Russia – with about £21bn, and the Middle East with £18bn.
A large proportion of this is channelled, via regulated investment vehicles, into London real estate. The total value of real estate funds being serviced through Jersey rose last quarter by almost 20% to around £29bn – the highest level seen since the pre-crisis levels of 2007.
Martin Lay, DTZ’s director of city investment, says Jersey-linked transactions have always been popular, but hints that the area might be an appealing route for newcomers to the London investment market.
“It’s well run, well regulated, it’s the first choice,” says Lay. “We see a fair number of transactions structured through the Luxembourg SARL vehicles, but very little in the Isle of Man or Guernsey. It’s Jersey we see, because
it’s familiar and domiciling a property vehicle there helps mitigate risks. It gives them confidence, especially for newcomers.”
Martin Paul, partner at Jersey-based Bedell Cristin Jersey Partnership, says: “Jersey is the well-trodden path for real estate investment into the UK. We’re not new or hot, but we have a long history in this area. Increased investment isn’t down to new structures or tax or regulatory changes – there haven’t been any – but down to the world economy giving us a new impetus.”
Simply put: Jersey is the brand leader, and if you want to play safe you pick the leading brand.
Paul points to investors from the BRIC economies – Brazil, Russia, India and China – as particularly conspicuous users of the Jersey real estate investment sector. Malaysian and Singaporean investors are also prominent, and the signing last year of a double taxation treaty between Jersey and Hong Kong may also have stimulated that market.
New arrivals find a market with plenty of nursery slopes for first-timers, rising gradually in complexity and regulatory bite up to the grand off-piste runs of offshore investment. Vehicles like the Jersey Property Unit Trust have been around for decades, and lesser-known but important structures, like the Jersey Very Private Vehicle, are extremely appealing to newcomers who might prefer informal club arrangements
(see box).
Paul says: “There’s a stable, regular real estate investment market which provides new investors with a degree of comfort, and opportunities for more sophisticated investment structured through light-touch regulation. In many instances it’s the service provider that is regulated, not the vehicle itself, which maybe makes it slightly easier to do business here than in Guernsey, for instance.”
Mark Rawlins at law firm Collas Crill agrees. “Jersey has a spectrum of vehicles and a spectrum of regulation, and although I wouldn’t say categorically no other jurisdiction has something like the Jersey Very Private Vehicle, it is something we have that is very helpful for newcomers to the market, allowing them to club together. It’s a nice easy open door. With the Very Private Vehicle property investors can get together, and off they go.”
Jersey’s appeal is unlikely to dim. The Far East – currently accounting for just £6bn, or around 4%, of Jersey bank deposits – is discovering the island’s convenience. As Richard Divall, head of Europe, Middle East and Asian investment at Colliers International, points out, Asian money has dominated London investment and this will increasingly be channelled through the Channel Islands.
“In 2013, Asian capital dominated the London investment market and this continues with second- and third-wave Asian capital including Chinese and Taiwanese Insurance Companies and cash rich developers. Malaysian KWAP bought an 80% share of Uxbridge Shopping Centre, UOL bought the Heron Plaza site from Gerald Ronson and there is a huge focus on Canary Wharf, particularly by Chinese capital,” he says.
For residents of Shanghai, Jersey seems a fairly recherché location, but it is confident its reputation will allow it to win more than its fair share of this tide of Asian money. These investors will join the many others for whom the Jersey shore is undoubtedly appealing.
Why not Guernsey?
Every offshore jurisdiction has its specialities. The Cayman Islands are a particular favorite with hedge funds, the British Virgin Islands with corporates and trusts, and Jersey has a speciality for real estate.
Capital flight
The Shard, SE1, is – literally – one of the largest London developments funded through Jersey.
Jersey-based LBQ is a joint venture owned equally by Qatar Islamic Bank, Qinvest, Qatar National Bank, Barwa International and Sellar Property Group. Qatari Diar agreed to fund the development in 2008.
The most recent Jersey signing is One Crown Place, EC2. Malaysian infrastructure business AlloyMtd is planning a 487,000 sq ft mixed office and residential development in the Shoreditch employment area after a rumoured £50m buy. The development structures include AlloyMtd (Jersey).
Very Private Funds
A “Very Private Fund” sounds exactly the kind of thing you would expect in a tax haven. But in Jersey these words have a special technical meaning and these special funds are of great interest to real estate investors in London.
Very Private Funds are vehicles for small groups of co-investors – not exceeding 15 in number – or for a single purpose, and there is no general offer of shares or units.
The regulation is light, they can be set up within 24 hours if need be, and they can be structured flexibly for single investors, joint ventures or co-investment.
Very Private Funds require only consent from the JFSC to issue securities in the fund pursuant to the Control of Borrowing (Jersey) Order 1958.
A Very Private structure is largely unregulated and the JFSC does not review the constituent documents. For a unit trust or limited partnership, the required JFSC consent is generally obtained by letter within a few days and without the need to submit documents.
Martin Paul, partner at Bedell Cristin Jersey Partnership, says: “Very Private Funds sit on a sliding scale of investment structures, and as you go up the scale they get more heavily regulated.“
