The property industry's rearguard action against EU proposals to lump real estate in with the hedge funds and investment products blamed for the global downturn, proves the importance of being heard in Brussels. Mark Faithfull reports
Sustainability and the environment, project procurement law and now alternative investments - is there nothing those meddling bureaucrats in Brussels will not touch? Well, it would seem not. The past 12 months have seen the European Commission roll up its sleeves and tackle a series of issues at the heart of the European real estate market, and the property industry has been given a rude reminder of how influential Brussels has become in affecting the day-to-day practices of the industry.
In truth, sustainability and environmental issues have been areas in which the EU has been active for some time and it is the costing of these that is most likely to concern the real estate sector, no matter how worthy the principles. However, the plethora of confusion that followed the 2007 ‘Roanne ruling' on transparency of contract procurement has brought home to many how important an industry's voice in European legislation is. This has been further underlined by European legislation designed to curb the excesses of the continent's hedge funds but which appears to have firmly roped real estate into its fold.
One body is in no doubt that there is a need to get closer to Brussels, and that means getting physically closer. The European Public Real Estate Association (EPRA), the industry body for the listed property industry in Europe, moved its office to Brussels from Amsterdam in early July, following approval of the decision by its executive board and members.
EPRA chief executive Philip Charls said of the move: "A major part of European policy-making takes place in Brussels, and EPRA's move will provide the association with the opportunity to build better relationships with EU policy-makers on a day-to-day basis. The move will enhance EPRA's visibility as a European representative organisation and therefore assist it in its mission to promote, develop and represent the European public real estate sector."
With the benefit of its first months in operation at its new headquarters, he adds: "For us it was an obvious move to take the organisation close to Brussels' activities. It is no longer enough to visit a Brussels meeting and then leave, you need a constant dialogue, to be part of the fabric of Brussels and to have a face and be local. If I can put it at the extreme, your children need to go to the same school as their children."
Charls has been pleased with the results to date. "So far the move has gone very well. It has become easier for us to be more proactive and we are being asked for our view and opinion by the commission, which means we get to influence decisions much earlier and that we are part of the ongoing and more natural dialogue, not reactive to events," he says.
That approach mirrors the US model, where The Real Estate Roundtable represents the property industry to Washington and comprises senior principals from US's top public and privately owned real estate entities, spanning every segment of the commercial real estate industry. These join with the leaders of 16 national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.
The roundtable works with Washington lawmakers and regulators to "produce meaningful results in the tax, capital and credit, environmental and energy, and homeland security policy areas".
By co-ordinating policy positions the roundtable's business and trade association leaders attempt to ensure that a cohesive industry voice is heard by government officials and the public about real estate and its important role in the global economy. Its main thrust at the moment has been advocating for government policy changes to help jump-start the sector. The roundtable has urged policymakers to adopt its ‘five-point liquidity plan', which includes changes in tax rules that will allow more foreign investment and improve the Term Asset-Backed Lending Facility's ability to foster new issuance of commercial mortgage-backed securities.
Jeffrey DeBoer, president and chief executive of the organisation's remit, explains: "We invite policymakers to examine the policy recommendations offered [by The Real Estate roundtable] document and we also remind them that policies crafted in Washington should be developed with an appreciation for all stakeholders - including the commercial real estate sector - and to be aware of potentially negative unintended consequences."
The importance of central, particularly pan-European governments, should not be underestimated and this is a message that the European Property Federation's (EPF) Michael MacBrien has been trying to stress to the greater industry. "Everyone should have a clear impression of the high importance of EU law in setting the whole agenda for the global real estate industry," he stresses.
The EPF represents €1.1trn of real-estate assets, and MacBrien emphasises the importance of wording and consensus within regulation and guidance, saying that action at EU level is "absolutely essential".
He cites as an example the coalition of the property industry - owners and professions - working with the commission, the European Parliament and the member states on upgrading the Energy Performance of Buildings directive, as well as devising a draft directive on the water performance of buildings. "Close involvement with this and a constant debate as to how it is achieved has proved vital to ensure that it meets its needs but that it is not cost prohibitive," he says. "We are looking at the logic of re-costing of this, as well as some of the proposals, which could be expensive," he adds.
Procurement has also become a thorny issue and UK national body the British Property Federation (BPF) is claiming victory after the government published guidelines for councils this autumn over how to interpret an EU legal ruling which had been derailing development through costly procurement procedures.
It was one of the key points of the BPF's Regeneration Manifesto, published earlier this year.
The Official Journal of the European Union (OJEU) ruling, which was intended to ensure competition, had prompted many local authorities to enter into lengthy and costly procurement processes. This had caused delays to more than 70 development projects around the UK, with some projects being abandoned altogether.
The Roanne ruling left local governments in doubt about the legality of development agreements entered into without a formal financial tendering process. Amid the confusion, many have subsequently taken the safest option of formally procuring development agreements through the OJEU.
"So where are the European developers moving in on these UK projects?" asks Robin Butler, formerly of Lend Lease and now managing director of Urban & Civic. "This ruling hasn't helped competition but the confusion has delayed projects."
Sarah Hannaford QC at Keating Chambers also points out that interpretations and nuances have added to the general uncertainty. "Even as a legal professional there is no doubt about it, the situation is incredibly confused and has left local authorities in a very difficult position," she says.
The BPF estimated that more than 70 schemes in the UK were delayed in the wake of the European Court of Justice judgment in January 2007.
Liz Peace, chief executive of the BPF, adds: "We are pleased that officials have responded to our ongoing conversations behind the scenes with some helpful guidance. While the industry is fully supportive of moves to ensure procurement is democratic and that all deals are carried out in the public interest, it is vital - especially during more challenging periods of the cycle - that over-the-top democracy doesn't start to contravene common sense."
However, Butler remains dubious that the UK has reached full clarification on this matter and argues that the threat of the OJEU process leaves developers in a position where they are put off potential schemes "because the costs are too high and it takes too long".
Dialogue is certainly what will be needed when it comes to the commission's Alternative Investment Fund Managers (AIFM) directive - the legislation that has focused the property industry's mind on the importance of EU law. What is pertinent for the real estate sector is that it is far from the only industry with strong views on the proposals.
Stuart Fraser, chairman of the policy and resources committee at the City of London Corporation, recently visited Brussels with the Mayor of London to urge changes to the directive, which aims to provide a comprehensive regulatory structure for AIFM operating within the EU. AIFM, which includes the managers of hedge funds and private equity funds, managed around €2trn in assets at the end of 2008.
Fraser reflects: "If it goes ahead unchanged it will be narrowly protectionist, fail to take account of other global players (including the US), and damage an important EU industry."
But others are worried that the private sector - and for this directive that encompasses a lot of companies and business segments - has failed to understand how Brussels can be influenced and that their representations could actually be counterproductive.
Richard Saunders, chief executive of the Investment Management Association (IMA), argues that many of the directive's critics are hampering efforts to change it because their rhetoric betrays a lack of public sector experience. "It's quite evident to me that the people who are making the most noise do not understand the people they're lobbying and how to influence them. They're just shouting to the press. It's completely pointless: it doesn't achieve anything and can actually be counterproductive."
INREV seems to share that view, stating that it has not changed its position that it does not act as a lobbying body, for AIFM or any other directive or European legislation. "As a body we have a mandate to lobby and therefore locating to Brussels isn't irrelevant," says Andrea Carpenter, INREV's interim CEO. "Rather, our role is to educate and inform our membership, and we run a full programme of events to keep them up-to-date with the impact of EU legislation on the sector."
Sander Scheurwater, head of EU Policy & Public Affairs at the Royal Institution of Chartered Surveyors (RICS) - which works under the umbrella of the Property Industry Alliance which includes the BPF, BCSC, British Council for Offices and Investment Property Forum - says: "Given the specific characteristics of property funds, taking more time for a proper assessment is justified. There is also a significant difference with the valuation of real estate from valuing other types of assets. RICS believes that the current wording in the Commission proposal is not suitable for real estate."
Saunders is certainly no fan, labelling it a "very bad piece of legislation" and "poorly drafted", with the result that the trade body has drafted and put forward 32 pages of amendments. Saunders says his team is working closely with its European counterpart, the European Fund and Asset Management Association (EFAMA), to make sure commission policymakers understand which bits of the draft document will work and which bits will not.
Back in the real estate world Charls wants to see a more proactive and less rhetoric-driven approach: "This is only going to become more important - the crisis is over and there is important legislation coming up on things like hedge funds and, of course, sustainability. We are very well placed to be involved in shaping these."
He says that ensuring that real estate does not end up punished for the perceived sins of other financial sectors is also crucial. "It is also vital that this is not a silent industry and that we do not get lumped in with the financial institutions," he stresses. "We were affected by the crisis but we are not part of the reasons it happened - we are far more fundamental than that. Lobbying also entails ensuring that this is clear."
Given that the lobbying machine for the financial services sector is in full swing, it is clear that the real estate sector needs to ensure its voice is heard and that the message is unified if property is to be well represented among the European regulators.
"Certainly individual companies do play their role and some are active in lobbing governments but I think this is an opportunity for a one-voice situation which combines individual actions as much as possible and enables us to deliver consensus for the industry in its dealings with Brussels," says Charls. "We are very open to talks with other organisations to further this too."