Gabriele Paladini
SI-Studio Inzaghi, Milan
gabriele.paladini@studioinzaghi.com

Introduction

Real estate securitisation companies (or real estate securitisation SPVs) are experiencing significant growth as investment vehicles for institutional investors and family offices for the real estate sector. These SPVs have emerged as an attractive alternative to traditional vehicles for real estate investments, ie regulated funds – in the form of contractual funds or funds incorporated as companies – and unregulated real estate companies.

Originally introduced in 2019 through amendments to the Securitisation Law^[1] that extended the receivables securitisation structure to the real estate sector, these SPVs have been increasingly adopted for real estate investments starting from 2021–22;^[2] and guidance, issued by the Italian Tax Authority in 2021 on the tax treatment, has contributed to that increase.^[3]

Looking at the market, these investment vehicles have been utilised by different types of investors – including institutional investors and family offices – and with respect to different asset classes, particularly hospitality, residential and retail. This growth can be attributed to several factors, including the following from a legal-tax perspective: a reduced regulatory burden compared to regulated real estate funds (though subject to specific regulatory provisions designed to protect investor rights), flexibility in asset management and tax efficiency for both SPV and foreign investors.

Structuring and governance of real estate securitisation SPV

Real estate securitisation SPV is a company established in the form of a limited liability company (Srl) or a joint-stock company (Spa), whose sole corporate purpose, pursuant to Article 7.2 of Law No 130/1999, is to perform securitisation transactions regarding proceeds from the ownership of real estate assets, ie rental income and capital gains from properties owned by the SPV.^[4] In brief:

• the funding of the SPV for the acquisition of the properties derives from the issue of notes backed by the properties;
• the notes are subscribed by the investors and must be repaid by the SPV, under the Securitisation Law, using any proceeds from the properties; and
• in addition, the SPV may also obtain traditional bank financing (the bank may also subscribe for senior notes).

The notes constitute debt instruments secured by the underlying real estate assets of the SPV rather than equity interests in the SPV. On the other hand, the SPV is held by a sole shareholder, which, in substance, is a legal entity that holds the equity interest in the SPV solely for the benefit of the noteholders-investors to ensure that the SPV conducts exclusively the activities contemplated by the securitisation transaction.

The sole shareholder, therefore, is a non-operational shareholder acting purely as a service provider, rather than a traditional shareholder; the noteholders are the actual beneficiaries of the SPV. In substance, the structure operates as if the SPV had no true shareholders, functioning instead as a segregated pool of assets managed solely for the benefit of the noteholders, that are the true investors.

A fundamental legal feature of the real estate securitisation SPV is bankruptcy remoteness.

Assets and rights owned by the SPV, the amounts derived in any way from such assets, as well as any other rights acquired in connection with the securitisation transaction by the SPV, constitute a segregated pool of assets (patrimonio separato) that is completely separate from that of the company itself.^[5] Accordingly, no actions by any creditor other than the noteholders or the lenders are permitted against the segregated assets.^[6]

SPV’s proceeds are subject by law to a binding obligation to use the same for the benefit of the noteholders and the lenders; in other words, the proceeds from SPV’s real estate assets are reserved exclusively for the noteholders and the lenders under the Securitisation Law.

The SPV shall identify the assets and rights designated to repay the notes and pay proceeds to the noteholders under the terms and conditions of the notes.^[7]

The identification of assets consists of publishing a notice in the Official Gazette (Gazzetta Ufficiale) including detailed information on the real estate assets acquired by the SPV. The publication in the Official Gazette provides public notice of the real estate securitisation transaction; accordingly, all third parties are informed of the asset segregation.

The asset identification requirement relates both to the legal segregation of assets and to the nexus between the notes and the underlying properties. This mechanism mirrors similar asset segregation mechanisms typical of securitisation of receivables, which, prior to the introduction of the real estate securitisation SPV, was not available for real estate transactions.

From a structuring perspective, the real estate securitisation includes two service providers: (i) a master servicer; and (ii) an asset manager.^[8]

The master servicer is the company engaged by the SPV to provide cash management and payment services and to verify that the activity carried out by the SPV comply with the Securitisation Law and the Offering Memorandum provided to noteholders. The master servicer must be a regulated financial entity registered in the specific Register maintained by the Bank of Italy or, alternatively, a regulated fund management company (società di gestione del risparmio – SGR).^[9]

The asset manager is the entity engaged by the SPV to perform activities for the management and improvement of the SPV’s properties. The asset manager must have specific expertise and a proven track record in the real estate sector, and may be either an independent third-party service provider or an affiliate of one of the noteholders.

While real estate securitisation SPVs have a more sophisticated legal structure than unregulated real estate companies, they may be more efficient for real estate investments under certain circumstances. From this perspective, the SPV may be also considered as an alternative to regulated real estate alternative investment funds.

Tax treatment of the SPV

The SPV is not subject to income taxes on the profits of the real estate activity – eg, rents or capital gains – during the securitisation transaction.^[10]

This is a consequence of the lack of ownership, for tax purposes, of both the properties and the proceeds from that properties. The lack of ownership for tax purposes derives, in turn, from the asset segregation and the obligation to use the proceeds for the noteholders set forth by the Securitisation Law: since, under the Securitisation Law, the properties purchased by the SPV and the related proceeds are a separate pool of assets (patrimonio separato) for the benefit of the noteholders (ie the investors), not for the benefit of the SPV, with a ring-fenced structure set forth by the law, the SPV does not own any income for tax purposes.^[11]

If at completion of the securitisation transaction, after the full repayment of the notes, there is a residual profit attributed to the SPV, that profit would be an income subject to tax at the level of the SPV; however, this circumstance is remote in a typical securitisation transaction. This is the standard tax treatment of a securitisation transaction relating to receivables.

The SPV does not benefit from a special tax regime with respect to VAT or transfer taxes regarding the acquisition, management and disposal of properties. From this perspective, it is similar to an unregulated real estate company, while a real estate investment fund may benefit from reduced transfer taxes on acquisition and disposal of certain types of properties.

Taxation of non-resident noteholders

The non-resident noteholders are exempt from Italian withholding tax on proceeds distributed by the SPV under the notes, provided that they satisfy the exemption requirements under Italian tax law.^[12] Capital repayment is not subject to Italian income tax since it does not qualify as income for tax purposes.

Under the relevant domestic tax provision, the withholding tax exemption is applicable to noteholders that are resident for tax purposes in a white-list country for Italian tax purposes,^[13] irrespective of their legal form or tax status in that country. Accordingly, for example, it is not required that the noteholder qualifies as a regulated fund subject to prudential supervision by the local competent authority. Therefore, the withholding tax exemption is not based on a tax treaty between Italy and the state of residence of the noteholder.

Noteholders established in a white-list country, but not resident therein for tax purposes, may benefit from the withholding tax exemption under certain conditions.

The category of non-resident investors exempt from income tax on proceeds from real estate securitisation notes is broader than that of non-resident investors exempt from income tax on proceeds from participations in Italian real estate funds.

Final remarks

Based on the above, it is worth noting that:

• the real estate securitisation SPV may be an interesting option for structuring cross-border investments in the Italian real estate sector;
• recent trends in Italy are demonstrating that it is also an interesting vehicle for foreign investors;
• considering that it is based on the securitisation model, potential investors (noteholders) must examine the securitisation documents prepared by the SPV;
• it must be also verified that the specific real estate project can be carried out with the securitisation structure (SPV, master servicer, asset manager);
• an in-depth legal due diligence is also required before the acquisition of assets by the SPV; and
• the careful selection of the master servicer and asset manager is equally important.

Notes