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Knowledge for ‘Real Estate Cash-rich Millionaries’ www.reallionaire-mag.com

Issue 5, November 2012 Price £4.95

REALLIONAIRE

MAGAZINE AIRLINES

FREIGHTS

TAXIS

THE NEXT GOLD RUSH: Turning Trash into Cash. FUEL CELLS

REALLIONAIRES’ TIP: Wooing capital amid the downturn HOUSEHOLDS

ASSET PROTECTION: Back To Basics: IBCs rule.

FINANCE: Profiting From Quantitative Easing. How reallionaires are still funding property deals.

LEGAL MATTERS: In pursuit of solar-tricity. Investors’ rights examine.


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Inside 4

ASSET PROTECTION: Back to Basics: IBCs Rule

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FINANCE: Profiting from quantitative easing & Government Incentives. How reallionaires’ are still funding property deals.

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TAX CLINIC: Understanding Tax Lien & Profiting From Them

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Legal MATTERS: In pursuit of solar-tricity: Investors’ rights examined

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Next Gold Rush:

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SOURCING OPPORTUNITIES:

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SALES & LETTINGS:

Turning trash into cash

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REALLIONAIRE’S TIP: Wooing capital amid the downturn Creating cash cow generators by

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REAL TIME REALLIONAIRES:

Editor’s comments Recently, a number of economic experts have openly stated that the austerity sweeping through the UK and Europe is likely to last until 2020. Despite the UK Government announcing the economy’s gross domestic product (GDP) grew in the third quarter of this year, no one dare mention the words; ‘green shoot’ or ‘recovery’. Clearly, the UK (as well as other western economies) is not out of the doldrums yet. As unemployment continues to remain high and banks struggle to balance their books, the outlook for investors remains a DIY scenario. In our November issue, our editorial team tackles a number issue that will help our readers continue to build and protect their property assets and wealth during the long austerity period. Moreover, you will find our approach somewhat different. We will be looking at strategies from a reverse perspective. For example, instead of our taxation article focusing on tax mitigation, it will look at how to make tax benefit you. Likewise, we look at how to use the government as a source of funding as credit markets remain tight. So, whether or not you have met your financial objectives this year, as 2012 draws close to an end, we highlight a number of strategies you should have implemented when expanding your portfolio. In reviewing your goals for the year, remember to invest the reallionaire way. Feel free to drop our team a line at feedback@reallionaire-mag.com With all the very best for the month ahead. Michael Woods Chief Editor

Reallionaire Magazine is published by HW Group. Offices at 2nd Floor, Kemp Hosue, 152-160 City Road, London, England, UK EC1V 2NX. The magazine is published on the 28th day of each month and distributed in the first week of each month. While every care is taken to ensure accuracy, Realionaire-mag, its affiliated version, its parent company, authors, digital creator and printer cannot accept liability for errors or omissions. Any artwork will be accepted at owner’s risk. All rights reserved. No part of this publication may be reproduced in any form without the written permission of the copyright holder and publisher, application for which should be made to the publisher. Opinions expressed in this magazine are not necessarily those of the publisher. All information correct at the time of going to print.

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ASSET PROTECTION IBC Rules: Revisiting IBCs.

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BCs are becoming fashionable again, particularly, among super savvy investors, as M Woods discovers.

Ultra-low interest rates have played a massive role in maximising property investors’ returns on cashflow: an advantage that investors in stocks and shares have always enormously envied. However, with governments in the western world reluctant to back down from rolling out new austerity measures,

maximising returns on capital and price appreciation still remains a challenge. At one time, the tactic of setting up an offshore vehicle to buy and sell investment real estate was a clever move, as investors could sell on their investment property asset by simply transferring the offshore ownership vehicle or shares in the offshore entity to the buyer and walk away with a tax free capital gain. This scenario is not so easy nowadays and with governments eager to reduce their budget deficits, the advantages once accrued under offshoring have now vanished. Setting up property investment vehicles in offshore jurisdictions is no longer seen as a tax shelter. Moreover, the

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protection of anonymity once offered by an offshore trust or company no longer exists. Trustees and registry agents of offshore companies now have to come forth with their client details or risk getting blacklisted. The onus is also on onshore corporate institutions (in particular banks) to report to the authorities remittance of money, assets or proceeds from the sale of assets. In this way, it becomes even more difficult to negate one’s tax liability. Chances are, it is better to pay some than risk a fine or prison sentence by avoiding paying any taxes.

THE ALTERNATIVE:

Well, if you do not want to give up your British citizenship, or become an expat


there may be another hassle-free solution. Yes, being domicile in a low tax or zero tax country does enable you to maximise your returns from investing in UK real estate, but it means living in another country for the most part of the year. Readers may be familiar with a number of well-known personalities who have given up their UK passport in return for a European passport and moved to countries like Luxemburg or Switzerland to enjoy favourable tax treatment. But, setting up an IBC (International Business Corporation) can save you a lot of hassle and is a smart move for reducing capital cost. What’s more, it is perfectly legitimate from top to bottom. IBCs are international companies set up and legitimised by various statutory laws and international treaties which afford them a number of special privileges, such as, lengthy tax exemption, avoidance of double taxation and re-domiciliation.

In recent years, IBCs have become very popular amongst a certain calibre of investors and, by far, outweigh the merits of an offshore company. So, when it comes to asset protection, cross border investment and double tax mitigation, it is clear why IBCs rule the international business scene.

GOING BACK To BASICS:

Historically, it used to be difficult to set up a company in one jurisdiction and trade in another. In addition, opening up bank accounts, office premises and carrying out other business formalities were a business nightmare. However, this is no longer the case. An investor can either move his/her business corporation or set up a new business corporation in an IBC recognised jurisdiction and gain all the benefits afforded in that location, while moving his/her passive income and capital gains to

their country of domicility without being taxed. Since there are international treaties signed and ratified between numbers of countries, it would be a breach of the treaty to double tax the owner of an IBC. Take for example, Mr X sets up an IBC in Barbados, due to the fact that there is an international treaty between Barbados and the UK, Mr X can buy property in the UK through his IBC registered in Barbados but not pay tax on any income or capital gains accrued from that property, providing he has paid tax to the Barbadian authorities. Naturally, the tax levied in the IBC registered country would be lower (say 0-2.5%).

GAINING AN ADVANTAGE:

There are numerous advantages to be had from setting up an IBC for investment and trade purposes. For instance, in some countries, the tax

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rate an IBC on passive income (i.e. rental income, royalties, dividends and other types of inward cash flow) is generally 0%. In a situation where a company is a multi-assets company and its parent company is an IBC, it will also enjoy tax exemptions. Additionally, in some IBC status countries, capital gains tax is exempted for a period of 20 years and corporation tax is charged at 0-2.5%. Further still, most IBCs are exempted from VAT, property tax, stamp duty and the owners can bring money back into the country without scrutiny from the tax authorities. According to Santiago Gomes of International Services Limited, ‘a Belize incorporated IBC pays zero tax and are mainly used for effective estate planning and the transfer of wealth from one generation to the next’. IBCs are also advantageous to real estate investors because it is a gateway to offshore banking. Offshore banking enables investors to perform operations that domestic onshore banks are unable to do, such as, accumulate tax free interest, hold various accounts and/or do transactions in different currencies (up to 10 currencies). IBCs owners can also simultaneously invest in property, a business, stocks and shares, bonds, forex and other money markets tax free; all under one umbrella.

KEY POINTS TO CONSIDER WHEN SETTING UP AN IBC:

In setting up an IBC, there are a number of requirements a property investor will need to satisfy and it is best to speak with your tax advisor first. Nevertheless, owning

CONCLUSION:

an IBC is a great way for reaping the rewards of your hardworking investment. It should be noted that a key requirement of an IBC is that it has to be carrying on some form of real business activity in the country of domicility and cannot be a shell company, as in the case with offshore companies. Another key point to consider is the tax treaty agreement between the countries where assets are held and the IBC is incorporated. In cases where an international tax treaty is in placed between the two countries, the tax treat will prohibit double taxation. In this way, owners of IBCs will be taxed in the jurisdiction where the IBC is incorporated and not where the assets are help. In most cases, the location where the IBC is set up, the tax rate is usually

much lower than the country where assets are held and the investor will benefit from paying the lower tax. One destination that has a treaty with the UK and is proving very popular among investors is Barbados. IBCs set up in Barbados are entitled to hold UK real estate and are not double taxed. Under the Tax Regime in Barbados, a registered IBC pays 0% rental income tax, 0-2.5% corporation tax and are exempted from paying capital gains tax, VAT, stamp duty, local and foreign dividends and inheritance tax. According to Mr. Ben Arrindell Director at Cidel Bank & Trust, ‘Barbados has Double Taxation Treaties (DTA) with 31 countries worldwide’. This enables investors to hold assets in many countries worldwide but incur taxes at a low rate.

In today’s world, setting up an IBC is definitely the way forward in order to protect your real estate assets, reduce investment cost, secure long term returns on capital invested, and cash-flow and effective wealth transfer, particularly, in times of austerity and tight liquidity. IBCs are back in faction. There is no need to hide. Instead, you pay taxes legitimately and protect your wealth, albeit at a far lower rate. Reallionaire Magazine | November 2012 7


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FINANCE

Profiting from Quantitative Easing & Governments’ Incentives. How reallionaires’ are still funding property deals. KT Cunningham (LLB) looks at how reallionaires are still funding property investment deals

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hen it comes to raising finance to fund commercial real estate investing, reallionaires certainly do know what sources to tap into, regardless of whether financial markets are in turmoil or buoyant. To them, money is always easy to come by, no wonder they are able to continuously expand their portfolio in booming and bust economic cycles. What’s more, the mere fact that real estate cash-rich millionaires and billionaires mainly invest in emerging gold-rush property assets, means their proposition will always lure capital, rather than them having to go in search of it.

As every property investor (big or small) may know, since 2008 central banks in western economies, in particular Europe and USA, have conjured up trillions of dollars of new money out of thin air and pumped it into their their respective financial system. In addition, governments of these economies have created a host of incentives, in the form of grants, tax breaks, subsidies and loans to stimulate growth in their respective economies. Despite the various prescriptions, quantitative easing (or QE) has been the mainstay. QE is a procedure whereby the central bank of a country buys long term government bonds in exchange for cash (newly printed money). The cash accumulated by the government is then either loaned to commercial banks, invested in massive infrastructure projects or dished out to private investors in the form of subsidies and grants. It should be noted, that QE has the effect of keeping interest rates low for long periods and in the process artificially inflates the consumer price index (known as, inflation).

The Beneficiaries of QE Nevertheless, QE & GI are two measures that have been aggressively used by the US, the UK and European economies to stimulate economic recovery. First in the queue are the big banks that have raked in billions from QE and sat on the money as they try to replenish their coffers. Pensioners and other savers suffered as the returns on their savings were wiped out by low rate of interests and inflation, leaving them in the minus. As one financial educator puts it, “Savers are Losers and investors are winners”. Inevitably, the group that is profiting the most from quantitative easing and government incentives are those investing in emerging gold rush real estate assets and blue chip property assets. Some of the gold rush property assets around today which are attracting cash created from QE and GI, include wind farms, solar farms, biomass mills, waste-to-energy sites and synfuel refineries. (See SAER for a list of the top 18 EGRPA.) In the U.K. ZY recently received £10 million in subsidies to build a wind farm.

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TYPES OF SCHEME TO BENEFIT FROM:

The U.S. Senate Committee on Finance recently approved the Business Tax Cut Certainty Act of 2012. The bill includes a wide variety of tax incentives that would benefit the bio-refining and biopower sectors, including those related to cellulosic biofuel, algae, renewable diesel, biogas and biomass power. The proposal would extend the $1.01 per gallon production tax credit for cellulosic biofuels for one year, through the end of 2013 and expand the definition of qualified cellulosic biofuels production to include algae-based fuel. Tax credit: The legislation would also allow renewable energy facilities that begin construction before the end of 2013 to claim 2.2 cent per kilowatt hour tax credit over a 10-year period. Alternatively, the bill seeks to allow electrical production facilities that qualify for the existing production tax credit, and begin construction by the end of 2013, to take a 30 percent investment tax credit in lieu of the production tax credit. Qualified projects may include close-loop biomass, open-loop biomass, landfill gas and wasteto-energy projects. Under the Renewables Obligation (RO) subsidy mechanism, the UK’s Department of Energy and Climate Change (DOCC) launched a £25bn subsidiary to fund investors of onshore wind farms.

There are a number of real estate moguls who own wind farms and are in pole position to capitalise this new funding avenue. Property tycoons, such as, Vincent Tchenguiz, Dale Vince, Duke of Westminster, Aloys Wobben, are all owners of wind farms. To add, developers of Waste-to-Energy centres and hydro-electric projects will also be able to access funding from the RO fund. Another financing strategy used by reallionaires to fund real estate investment deals was to securitise feed-in-tariff incentives. While amateur property investors were looking to earn nominal monthly income from erecting solar panels on their roof. The super savvy investors were setting up investment vehicles, like REITs or structuring deals where the can raise lump sum capital in advance to build solar parks and use the Government 25 years guarantee tariff payment as security for repaying investment/subscription capital and interest. The UK’s Energy Act 2008 brought into force the feed-in-tariff scheme to which smart investors have already raised 100’s of millions. According to recent statistics, there 10 times more solar REITs in 2012, than there were in 2007.

FUTURE OPPORTUNITIES:

Since the 2007 financial tsunami, billions in grant has been given away by Governments

in USA, UK, France, Germany, Japan and more, to developers of bio-fuel plants, recycling centres, solar parks and many other types of green real estate. For those in the know, you are likely to remember President Obama unveiling in February 1 2011, a US$2.5 billion spending budget allocated to the US Department of Energy, backed by an additional loan guarantee scheme of $2-$5 billion dollars. Well, let us put the future into perspective. Since September 2008 to September 2012, the UK central bank has shed-out a total of £375 billion in QE, whereas, in the US £1.4 trillion pounds has been paid out to date. Are there any signs of these countries abandoning their QE policy soon? In the immediate term, No! As unemployment remains high, economic growth remains flat and their major trading partners in the Eurozone remain in crisis, these governments will continue to dish out money to investors in the form of QE, tax breaks, subsidies, guarantee loans and other types of government incentives. In the medium term, such schemes will be cut substantially. So, as a property investor, your strategy should be investing in a booming property sector where QE funds are available.

Conclusion:

In conclusion, do not be deterred by the hype coming from the press. Arguably, credit facilities may be tight, but the credit market is not the only source to raise finance for property investing. By doing some careful research, you can raise millions from government’s sources to build and/or expand your property portfolio. Additionally, tapping into government funding is seen as a means of getting out of the liquidity trap. Reallionaire Magazine | November 2012 11


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TAX I 3. Understanding Tax Liens and Profiting from them.

As H Goldstein FCA explains.

You see, there are millions of people around the world who own very large estates (forestry, citrus plantations etc) and in most cases, have inherited it from their family. However, in many cases, property taxes have become overdue for various reasons and consequently the government has put a lien or charge against the land. Owners of such land opt to sell at a discount price rather than paying off the lien. Perhaps in most cases, they are unable to pay off the charge and are running into debt. According to Brad Westover, executive director for the

t would be naïve to view a tax lien as a charge against a property resulting from the property owner’s failure to pay land taxes. By adopting a more savvy perspective, a tax lien can be an opportunity to buy real estate from distressed sellers. In fact, one of the best ways to build an equity-rich portfolio is by buying properties off owners who are delinquent property tax payers or have got a tax lien registered against their name.

National Tax Lien Association, between $7 billion and $10 billion in property taxes go delinquent each year. It should be noted here, that in the US unlike other countries, the tax authorities can go to court to obtain what is known as a ‘tax lien certificate’ in which they can sell or auction off to private investors to collect their tax dollars. The purchaser of the tax lien certificate then becomes the creditor of the land owner, although this does not give the creditor any immediate interest or rights to the property. Nevertheless, the creditor does want to ultimately realise his investment in land ownership terms.

ARE TAX LIENS WORTHWHILE?

From the outset, investing in unsold tax liens can be challenging and becomes very

complicated when the owner has a mortgage on the property. In essence, the tax lien cannot materialise until the mortgage is paid off as the mortgagor is the largest creditor and first in line for compensation, if any. [Please note, this rule varies from country to country, and in the US the lien comes first and the mortgagor gets compensated second.] Therefore, an investor could be holding someone else’s debt for years until the mortgage is paid off. So, as a caveat, first you should look to buy tax liens on estates that are mortgage free. Purchasing tax liens on non-incumbent estates are very worthwhile as they act as an indirect option to buy the land (agreed sale price less overdue tax). In this way, you obtain land below the market value. Not all liens work in a simple way as explained above. For example and in particular, in the US, tax lien certificates, when auctioned off by the government,

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only entitle you to earn interest on the money you invested. In others words, say you were to buy a tax lien certificate (or overdue tax certificate) for US$20,000. You can benefit from a monthly interest payment on your money which can range from 10% to 25% for a fixed number of years. In this way, the government realises the taxes owed to them while you get a guaranteed income.

RISKY BUSINESS:

It is not always that simple when it comes to investing in tax liens and at times it can be a risky business. For starters, the yields are tempting but the potential pitfalls of tax lien investing are huge: Those who lose out could either end up saddled with a worthless property or with nothing at all. Secondly, tax liens can be very costly and time consuming to enforce. Just like a secondary lender attempting to enforce his charge on a secure loan, an investor of a tax lien can bring repossession / foreclosure proceedings against the estate owner to recoup the money he/she paid for

the tax lien. However, the cost you may incur may outweigh the amount you bought the lien for, whereas, in other cases, you may only recover part of your money rather than all. The major risk of investing in lien arises when the estate owner files for bankruptcy. Normally, in bankruptcy proceedings all the debtors assets are seized and sold via auction and the biggest creditors get paid first. If

the asset is worthless or below the value of the due debt, your chances of recovering any money after receivers fees, could be nil. Also consider, tax liens are very illiquid paper assets which cannot be cashed-in or resold to the tax authorities. Your best bet is to sell them on the open market to investors and this usually occurs at a discounted amount or a loss.

Conclusion:

Tax liens are an idea for investors who want to force a discounted sale from a distressed property owner. If you are looking for passing income, then a tax lien is not the right investment as the risk outweighs the rewards. However, like tax equity, the tax lien has created new investment opportunities which are currently booming as a consequence of a government’s urgent need to collect tax revenue and the growing number of delinquent property tax payers. Therefore, it is becoming increasing popular to build a property portfolio by purchasing tax distressed properties. Like every other investment, it is important that you do your homework first and in the long run the profit gains stand to be potentially huge.

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LEGAL MATTERS: In pursuit of solar-tricity! Investors’ rights examined.

Investors can save themselves from numerous lawsuits by knowing their rights before investing in solar-tricity projects, as M Alexander-Gordon LLB (Hons) LLM, LPC writes.

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uper savvy investors always aspire to own the goose that lays the golden egg. There is no doubt that solar-tricity (electricity generated from solar panels) offers real estate investors lucrative multiple returns. Hence the reason why solar farms are regarded as a gold rush property asset.

Investors can save themselves from numerous lawsuits by knowing their rights before investing in solar-tricity projects, as M Alexander-Gordon LLB LLM writes. Moreover, judging by the number of reallionaires who have bought solar farms over the last five years, institutional investors have begun to add solar farms to their property portfolio. Solar farms have been tipped by

many experts to yield large capital and cash-flow returns for at least the next 20 to 25 years (particularly if you are benefiting from a first mover advantage). According to London research house; Prequin, the number of investors investing in solar farms was up nine-fold in 2010. Further, the lure of very good equity appreciation and the availability of government subsidies as a source of capital raising make solar farm assets hard to resist. However, amid the mad rush to buy up assets in this booming property sector, property investors should bear in mind two potential major legal problems:. The two legal issues that have cropped up and seem to be posing a legal obstacle to the erection and retention of solar-tricity farms were: the right to light contributed to a breach of easement and whether a leasor/operator could opt out of his obligation under lease agreement if subsidies were suddenly cut.

RIGHT TO LIGHT:

Obviously there are some lucrative financial benefits to be gained from investing in a solar farm asset. However, when it comes to erecting solar farms, espe-

cially near inner city locations, the matter becomes less clear cut. What is unclear is whether a developer is in breach of an easement when he/she erects a solarfarm that minimises or prevents their neighbour from enjoying the right to (sun) light. This issue has been raised a few times in various property presses, but has yet to be property tested in the courts in recent years. The right to light (one type of easement) has been questioned by many in the sense of whether the developer is truly infringing on their neighbour’s rights when they erect solar panels that block or prevent a neighbour from enjoying the sun rays? For starters, there are no rights in common law and therefore no legal claim can be brought against you. Similarly, I am not aware of any statutory rights that put a claimant in an advantageous position. To date, no UK courts have had the opportunity to address this question. However, there is one case I wish to cite, where the UK Court of Appeal attempted to answer the question of the right light in an ad hoc manner. In Allen V Greenwood [1979] 1 EGLR 137.

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In this case, the claimant submitted to the court that he had acquired by prescription a right of light through the windows of a domestic greenhouse. The court upheld the claimant’s argument that light was a right acquired under the Prescription Act 1832 and that the light required was for the beneficial use of the building for ordinary purpose (i.e. greenhouse gardening). Based on this judgement, I believe it is safe to say that if a developer erects a solar farm, solar panels on a roof, a solar car park or any asset that includes solar panels, and such construction prevents light from entering its neighbour where such sunlight is fit for a specific purpose, then such a construction will amount to an infringement of the right to light. The term ‘beneficial use’ is the operative word. So, if light is prevented in the same manner that a normal tree would block out sunlight then the right to light question would be answered in the negative. Thins may change soon as The

Law Commission intends to publish a consultation paper in 2013, followed by draft legislation in late 2014 to early 2015. Until then, developers of solar farms may not need to lose sleep over this problem.

EXCUSED FROM A LEASE AGREEMENT:

When it comes to producing and selling solar-tricity, as a leasor/ operator your best bet for raking in guaranteed cash flow is to sell the solar-tricity to the National Grid (or the government/state). The most common form of revenue a developer of a solar farm who produces solartricity can earn is feed-in-tariff. The feed-in-tariff (fit) model was structured on the premise that the owner would sell a volume of electricity (in megawatts) in return for a fixed fee over a fixed period of time (generally 25 years). Sounds like a no brainer in theory and many developers/operators have entered into agreement, guaranteeing a percentage of fit as

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a means of offsetting capital cost. However, problems arise where feedin-tariffs are cut, making it difficult for the leasor/operator to fulfil his contractual obligations. The question then arises, whether the leasor has a right to excuse himself from a legal obligation or renegotiate rent payment on the grounds that his forecasted cash-flow (FIT) has been cut? SStrictly speaking, solar farm operators (or tenants) who become solar-tricity producers have no rights to be excused from their legal obligation with their landlord on the grounds that their contract has changed due to a third party altering their original position. Third party rights is non-circumventional: Rights of Third Parties Act 1999.


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The Next

Gold Rush

Turning Trash into Cash. After visiting several recycling centres in the UK, KT Cunningham LLB discusses making money from your rubbish.

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id you know what happens to your trash after you wheel out your bins? Historically, they were collected by garbage trucks and either taken to landfill sites to be dumped and buried or put into steel containers and shipped abroad. Today, these garbage trucks are on a detour. If you were to tag these rubbish carriers, you may be displeased to learn that your rubbish is now taken to recycling centres.

What’s more, the majority of the waste collection activities carried out in the world nowadays is not undertaken by your local council or state but rather by a private company owned by a multi-millionaire. Hence, the reason why you are highly likely to be displeased: You pay council tax for a service carried out by a private company who then turns your trash into cash. Don’t believe the hype that promotes the idea that the property market has crashed, as recycling centre real estate is a booming property asset. Moreover, as landfill sites are converted into resource recovery parks, there is only one place for your rubbish. You guessed it; recycling centres, what some investors refer to as ‘waste-to-energy facilities. However you look at it, your waste is being processed into green energy (both eco-tricity and bio-fuel) and is then exchanged for huge sums of cash. Waste-to-energy is vastly emerging as a hugely lucrative investment opportunity.

WHO IS RAKING IN THE CASH?:

So, who are the pioneers of such a successful business model? Well, you may or may not be surprised

to know that BIFFA, who owns the Biffa rubbish trucks you see driving up and down your streets, owns one of the largest UK recycling centres, based in Edmonton, London. The American real estate billionaire, Samuel Zell, is another investor who is raking in millions in cash from converting municipal solid waste to cash producing assets. He has investment interests in five wasteto-energy centres in the UK and Europe and has also done a JV with another real estate mogul, namely, John Whittaker of Peel Holdings. When it comes to innovation, I have to admit myself, I am quite impressed with the work done by Solena Group Inc (Solena-fuels), a company who plasma gasification vitrification technology to convert biomass waste into synthetic liquid biofuels, such as jutbio-fureld. Synfuel is a topic we will explore in more detail in our January issue. According to Allan Austin, writing in the Biomass magazine, Solena Group Inc. have entered a joint venture with British Airways to build a 16 MMgy waste-to-jet-fuel plant in East London, which will see its plant process 551,000 tons of municipal waste. The group estimates that the their

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East London site, when completed, will convert this 551,00 tons of biomass waste into 16 million gallons of jet fuel and 8 million gallons of BioNaphta. The company estimates its revenue to be in excess of $50 million over its first 15 years in operation. Clearly, waste-to-energy centres are set to be the biggest boom sector in the Green Real Estate industry. In 2011, Greenfield Inc and Enerkem formed a JV to develop a US$70 million facility in Edmonton, Canada, for producing 9.5 million gallons of synfuel from municipal solid waste (MSW). Super Savvy Investor, Jim Ratcliffe’s bio-fuel company, INEOS Bio has produced an estimated turnover of $44 billion from the sale of bio-fuel.

DRIVERS OF GROWTH:

There are a number of factors that significantly stimulate growth within this new commercial real estate sector. Firstly, WtE facilities are gaining impetus from government legislation in the U.K. as government has increased landfill tax from £12 per ton in 2003, to £40 and it is expected to rise to £72 a ton in 2013. Such a harsh punitive measure is forcing owners of landfill sites to


close down their sites or convert them to energy resource recovery parks (or LGFE). The more trash available to convert to bio-fuels means more cash to accumulate. Last year, the world’s airlines spent $140 billion (€103 billion) on jet fuel. Since July, when the global standards agency ASTM International gave approval for airlines to start flying on bio-fuels, six passenger carriers have embraced them. Paul Steele, executive director of the Air Transport Action Group said, “Airlines are currently paying around three times the cost of Jet A-1 for the bio-fuels they are using, which is of course unsustainable in the long term. So, as the price of oil continues to rise and we work on new sources of bio-fuel, it is only natural that airlines will start demanding more biofuel.” The London Foodwaste to Fuel Alliance project, announced by Mayor Boris Johnson last year, is intended to further stimulate the conversion of the city’s food waste into renewable energy and reduce landfill waste disposal. This policy will also have the effect of boosting the construction of more anaerobic digestion and biodiesel production facilities in the UK. Also, depending on the type of WtE facility, owners are benefiting from a basket of government incentive, such as, feed in tariffs, 0% capital gains tax and no rental

income tax. Further, the inclusion of airlines into the EU Emissions Trading Scheme (beginning in 2012) and shipping companies incurring sulphur emission restrictions while coming into ports has accelerated the need to produce more renewable fuel. As globally, governments’ political and economic desire is to move

providing significant cash returns for investors Apart from the strong demand for biofuel coming from the airline and marine sectors, there is also a strong demand from road vehicles. One report highlighted a case where car drivers in the UK obtained biodiesel at 0.15p a litre, bringing about huge savings on the average £1.20

away from fossil-fuel and coal produce fuels and rely more on renewable fuel, the demand for fuel from waste will growth significantly,

per litre of petrol. [See further, The Guardian, 10 May 2008. At 15p a litre, home-brew biodiesel is fuel of the future.] Speaking at the Green Skies 2011 conference in Hong Kong, Mr. Steel encouraged governments across Asia to kick-start development of their own aviation bio-fuel initiatives to secure a slice of what he said is sure to be a bull market for the renewable source of clean-power. Given the stats on the profitability of making money from rubbish, one would wonder if any opportunities for the small investor exist.

MULTIPLE CASH FLOW STREAMS: Solar energy and wind farms may generate more cash than waste-converted into electricity, but when it comes to producing bio-fuel it has no rivals as a cash-cow asset. Currently, waste disposal is paid for by councils throughout the UK through landfill taxes of approximately £40 per metric ton, which will rise to £72 per metric ton between 2013 and 2014. So, do the maths yourself. The most cash paid for bio-fuel comes from the transportation industry with all major airlines tying up deals in one form or another. Additional revenue streams generate cash from Feed-in-Tariff, carbon credit and tax equity.

CAN THE SMALL INVESTOR GET A PIECE OF THE PIE?

Well, fear not! Turning your waste into a cash generating asset is far more feasible than you may think.

Reallionaire Magazine | November 2012 19


It is not only an opportunity for the super-rich investors. More importantly, the Government has not yet put in place a system for collecting revenue from small scale biofuel vendors. However, this window of opportunity may not last for long, as with all other green real estate tax exemption opportunities. Nevertheless, one way of raking in the profits this burgeoning industry has to offer is by forming a cottage industry within your neighbourhood, where communal waste can be collected and taken to a central location and be processed into biofuel. Another way of doing this is by purchasing the micro-fueler for ÂŁ2,000, from American firm,E-Fuel Corporation. Their micro fueler technology makes it possible for households to convert food waste into green car fuel. I am not going to go into this but it is worth doing some research. Likewise, there is a Japanese company who have also made a similar machine. What baffles me the most, is why the local councils are not raking in the millions themselves instead of sub-contracting waste collection and processing to a third party who is getting double rewards. Even kids in some countries are doing it. Well, readers, you will be delighted to know I can reveal one well-kept secret.

Conclusion: In conclusion, it takes one ton of garbage to generate 70 gallons (or 318 litres) of bio-fuel and sold at ÂŁ0.50p a litre, is it really worthwhile? Well, by reducing the reliance on oil, minimising air pollution, triggering new employment sectors and overhauling the way in which vehicles are powered, it appears that trash-based bio-fuel will be highly ranking among future renewable energy sources. Among the five types of bio-fuels existing, bio-diesel and synthetic fuel have already been established as billion dollar industries. And, whilst there are various types of waste being used to produce biofuel, household waste remains one of the easiest with long term viability, sustainability and good income streams.

20 November 2012 | Reallionaire Magazine


Sourcing opportunities ALDI PLC Due to expansion, we are currently looking for 30 new outlets for our pizza operations.

2% commission paid on completion All agents welcome. Phone: 0207-898-246 for further info

Due to expansion, we are currently looking for 8 new outlets for our supermarket operations. 2% commission paid on completion All agents welcome.

Phone: 0141-998-246 • 0844-406-8800 for further info.

Drive Thru

We pay “Finger Lickin’ Good”

Finders Fees

Due to expansion, we are currently looking for 10 new outlets for our HOTEL operations. 2% commission paid on completion All agents welcome. Phone: 0252-898-246 for further info.  Fees become payable upon unconditional exchange of contracts.

£20,000

For recognized introductions

Food Court/Restaurant/Express

Find out more>>

£12,500

* For

recognized introductions

*Fees only paid to property professionals on unconditional exchange. Valuation/negotiation advise and monthly updates required to remain eligible.

Email us: property@kfcdevelopment.co.uk Tel: 08457-532-532 Reallionaire Magazine | November 2012 21


Sourcing opportunities Bupa Care Services is seeking development sites to expand our health care property portfolio.

Papa John’s Pizza

Looking for sites in the U.K. 2% finder’s fee.

2% commission on successful exchanged of contracts. Contact: Mark Hughes

Tel: 07921-647-283 developments@bupa.com

MJB

Email: property@papajohns.co.uk

Phone: 0844-567-0937

chartered accountants

Hamwoods International A leading real estate asset management firm, specialising in: Sourcing Green Real Estate Project Finance Portfolio Management Offshore Services

We specialise in providing > > > > > Visit us at www.thelondonnotary.com

Auditing Accounting Book Keeping Payroll Tax advice

22 November 2012 | Reallionaire Magazine

www.mjb.co.uk

www.hamwoods.com


&

SALES LETTINGS

Hanley Swan, Worcester, Worcestershire WR8. A substantial country house surrounded by 74 Acres of land. Ideal to construct a solar farm.

Green Lane, Reading, Berkshire RG30 3XN 6 acres Land with planning permission for a waste-to-energy or recycling centre

ÂŁ2.6 M

ÂŁ900k ono Reallionaire Magazine | November 2012 23


SALES & LETTINGS Park Road, Hockley, Birmingham, West Midlands, B18 5SR

Recycling centre built on 10,838 sqft and in active operations.

ÂŁ750k ono G Park, Worksop, Nottinghamshire S81 7BQ.

330,418 sqft of industrial property with planning permission to convert to data centre

Price on application Little Hadhamd. Essex

The Bury Green Data Centre Development Site is an 11 acres of cleared development land with the ability to deliver 90,000 sq ft of technical floor space in two dedicated Data Centres.

24 November 2012 | Reallionaire Magazine


Reallionaires’ Tip Buy Property Assets That Woo Capital!

25 November 2012 | Reallionaire

Reallionaire Magazine | November 2012 25


A

re landfill sites a property asset that is wooing capital amid the economic downturn? Sebastian Jay investigates.

Forget about the recession! Landfill sites have got some very wealthy admirers. Once labelled as a necessary evil, some environmentalists regarded them as blight on the landscape, and a modern-day representation of society’s wastefulness. But while environmentalists have undoubtedly played a big part in enhancing public awareness on waste issues, it is tighter waste legislation in the UK, Europe and Japan that is pushing real change in this sector – and creating opportunities for savvy property investors. So far, it’s reallionares who are capitalising on the lucrative opportunity of reinventing landfill sites into bio-gas fields (or LFGE – Landfill Gas to Energy). What’s more, this alternative ‘annuity-style’ commercial property investment is quickly growing in popularity. In 2005, there were 396 operational landfill natural gas projects in the USA, according to Brian Guzzone, team leader of the Landfill Methane Outreach Program (LMOP) under the United Nations Framework Convention on Climate Change. On the latest count, dating June 2012, there were approximately 594 sites, said the LMOP. This estimated number of sites

has the potential to produce 210 billion cubic feet of green-gas per year, or 1,165 MW of renewable electricity a year. In England, the number of LFGEs has also increased from 29 sites in 2001 to around 264 sites in 2011. Generating renewable natural gas (RNG) and/or renewable electricity from landfill gas fields is a real example of how to turn a liability into an asset, as a LFGE site is now regarded as ‘Green gold’. The number of LFGE developments has also significantly risen over a ten year period in other countries, such as, France, Sweden & Japan.

The changing face of waste:

Traditionally, landfills received a broad mix of non-hazardous waste with low pH levels. But odd things happen to buried waste over time. Landfill gas is created when organic waste in a municipal solid waste landfill site decomposes. The pH level in landfill sites rises to cause methane, of which, 50% of landfill gas is, and the other 50% consists of carbon dioxide (CO2). To extract bio-gas from landfill sites, a series of well pipes are drilled into the ground and the gas is then liquefied through heating. The liquid natural gas is subsequently fed into the power grid to produce electricity

or converted to bio-methane to provide fuel for vehicles. In this article I focussed on the profits derived from turning LFG to electricity.

Demand & Supply:

Investing in LFG sites are a win-win opportunity for all parties involved, regardless of whether you are an owner/operator, leasor/operator or a Landfill REIT. Whether an investor decides to enter this green real estate sector as an active or armchair investor, the opportunities are myriad as supply remains excessive and inelastic. Take for instance, in the United States, there are currently 2,400 or so operational or non-operational municipal waste landfill sites, of which only 576 are actually extracting

In the UK and Europe the scenario is pretty similar. There are literally thousands of landfill sites that are either redundant or in the process of winding down. The new European Directives requiring landfill volumes to reduce by 25% by 2020, coupled with increased landfill tax tariff and a decline in household waste are all factors forcing landfill owners to sell up or change over to resource recovery parks (or LGGE sites). Evidently, as landfill sites continue to decline, the supply of sites will remain high and present more opportunities to the super savvy investor.


biogas as of early 2012. The EPA estimates that as many as an additional 540 landfill sites could cost effectively turn Landfill methane into energy recovery sites (or LFGE sites) and produce electricity to power 716,000 homes in the US. Nevertheless, in addition to capturing the bio-gas and producing electricity, cash flow can also be generated from creating and selling bio-fuel, producing renewable green power, Feed-in-Tariff and Carbon Credit to name a few.

ATTRACTING CAPITAL:

As a property asset, landfill sites seem to be wooing capital far easier than traditional real estate sectors. All developers are aware of the fact that attracting investment dollars to build an apartment block, a new hotel or a conference centre is like participating in an obstacle race. What’s more, the underwriting procedure for acquiring finance to buy traditional property assets keeps changing randomly and at the expense of the borrower. Since the great financial havoc of 2007-2009, the criteria and source for wooing capital has considerably changed, in particular, from savvy property investor perspective. Therefore, it became fundamental to either create a new property asset or reinvent a dying property asset and align it with an emerging trend in order for capital to chase the project and not the other way around. Thus, with the advent of the many new green climate funds, government subsidies and private finance instruments being launched, it became easier for owners and operators of landfill gas sites to raise capital. Recently, Broadrock Renewable benefited from a US$10 million stimulus grant from the US Department of Energy (DOE). Apart from governmental & NGO financial instruments, pension funds, REITs and private equity groups see LFG as a very smart asset to plough their money into. There has been much coverage in the UK’s press about Terra Ferma private equity plans to expand its LFGE portfolio over the years. US private equity Glendon Todd Capital has invested

millions into SDL Citadel, a developer of LFG projects. However, the biggest move of 2012, was by private equity investor, Capital Dynamics who acquired a 64MW portfolio of UK landfill gas assets. The portfolio consists of 35 operating sites spread across England, Scotland, and Wales that will sell renewable electricity under a lengthy agreement with both UK Government agencies & major energy suppliers. A third source splashing cash into the hands of landfill gas developers, are sovereign funds. The Qatar Investment Authority has spent $4.3 billion US buying up European properties and has turned its attention to energy recovery parks. Also, it was

reported last month, that Terra Firma is planning to raise a fund of up to $5bn (€3.86bn) in conjunction with China Development Bank to invest in renewable energy, with a focus on LFGs. Today we have financial services companies, such as Marex Spectron, who have an extensive database of clients who are either looking to invest or require project finance in the renewable energy and green real estate marketplaces.

Assessing the risks to rewards ratio:

Steady renewable gas production, consistent income streams, equity growth, and rarity of valuation bench-

marks underpin the attractiveness of landfill gas to energy sites in the property investing community. A March 2011 investigation into the economic value of landfill sites by Cranfield University in the UK concluded that gas extraction could be assumed over a 50-year period given a minimum 15 years waste deposition. A valuable timescale to keep in mind, as this property asset is still in its infancy stage. There are still thousands of untapped landfill sites existing in the UK and other parts of the world. In fact, it is estimated that a recently closed site in the UK could harbour half a decade’s worth of renewable energy resource. Whereas, sites that are still open could offer returns over a longer time span. For example, a site which has been closed for as little as five years can produce enough green-energy to provide electricity for up to 2,102 homes. Capital Dynamics is of the view that, landfill gas projects are a lower-risk clean energy investment due to the maturity and robustness of the energy generation equipment employed. Equity & capital growth opportunities attract capital: This property asset is capable of producing steady streams of revenue over the long term via sales contracts with government and public utilities. Most analysts have concurred with this view. However, institutional lenders / investors, like super savvy property investors are more interested in equity and capital growth than cash flow. Once an asset demonstrates an ability to produce consistent upward equity and capital appreciation, it will woo capital easily. The thing with landfill sites is that no more are being built in the UK and Europe, while in the U.S. the pressure is on operators to curb their growth. However, there is value in scarcity – and once landfill gas sites are better appreciated for their contribution to solving the global energy conundrum, asking prices will skyrocket. In the near future, it is very likely that even the smaller untapped sites will become blue chip property assets. This really is a market primed for growth. Don’t miss out.

Reallionaire Magazine | November 2012 27


What’s coming in our

December issue! The next issue focuses on:

• How small investors can finance solar farms acquisitions • Profiting from wind farm real estate • Transferring wealth to the next generation • Earning £4,000 a month from just sourcing properties and more.

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28 November 2012 | Reallionaire Magazine


Real-time reallionaire Track the top property acquisitions, disposals and financing deals done by Real Estate Cash-Rich Millionaires in the last month.

1

3D Cinema Lease Agreement: Multikino Cinema, a polish 3D cinema operator/ owner, signs a lease agreement witj multi development Poland, for space at Forum Radunia in the Gdansk region. Situated at the multi-functional urban complex, 1,600 seats will be created. It is apparent that multi-millionaire Bruno Valsangiacomo is busy expanding his cinema property portfolio.

2 3

Medical Centres Medical centres still remain a blue chip asset whilst, hospitals have become a cash cow. It should be no surprise that REITs, such as, Griffin-American Healthcare REIT II Inc is acquiring them. Three Los Angeles-area hospitals and three medical office buildings in Texas and Georgia were bought for approximately $108.7 million. The health care REIT now has 121 properties making have Danny Prosky more cash-rich.

Shopping Centre Acquisition American reallionaire, Phillip Edison recently acquired a 82,000 sqft shopping centre in Ohio, Cleveland USA via his ARC Shopping Centre REIT. The shopping centre comes with an 85% occupancy rate and strong long term covenants. ARC REIT now holds 22 shopping malls across the US and is actively looking to expand it property portfolio further.

Reallionaire Magazine | November 2012 29


4

Bio diesel acquisition: REG Inc, owned by Daniel J. Oh has paid US$300,000 in cash and issued 900,000 shares to acquire a 15 MMgy North Texas Bio-diesel plant in Texas. This acquisition will take the company’s production capacity to more than 225 million gallons a year.

5 6

Extended credit facility. Chambers Street Properties, formerly known as CB Richard Ellis Realty Trust, has successfully negotiated a $700 million (£434m) revolving credit facility from a group of lenders led by Wells Fargo Securities LLC and RBC Capital Markets. The four-year facility includes a one-year extension option, as well as, an option to increase the line of credit up to another $700 million, for a total of $1.4 billion.

Wind Farms MEAG Munich Ergo acquired three onshore wind farms in the UK. One of which includes the UK’s largest onshore wind farm near Manchester, and one each in Lincolnshire in North Wales, for its Renewable Energies and New Technologies (RENT) programme

7 30 November 2012 | Reallionaire Magazine

Forestry: Reallionaire Jack Fagan of Austria recently acquired 921 Acres of forestry portfolio. The forestry is scattered over 20 locations in six counties in Ireland and went for3.85 million euros. Is he going to convert the forestry into a bio-fuel park? Let’s wait and see.


Reallionaire Magazine | November 2012 31


32 November 2012 | Reallionaire Magazine


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