Contributed by Baur Hürlimann
Real Estate Market 2013
Switzerland’s real estate market is being closely scrutinized and some sections of the media are warning of a real estate bubble like the one experienced by the USA and Japan in the 1980s and 1990s. Economists of the Bank of Japan recently carried out a real estate market analysis for various European countries putting the long-term demographic trend, the development of real estate prices and lending into context. Switzerland was not part of the research done by the Bank of Japan economists, but Swiss media do believe that the results of these analyses can be extrapolated to apply to Switzerland.
Real estate prices in Switzerland are at a high level, and on the rise. The prices for condominiums have now reached their highest ever level while the prices for single family detached houses are now somewhat below their highest level, which they reached in 1989. Overall, however, real estate prices have risen by 30% in the last ten years. In contrast, mortgage interest rates in Switzerland have – for quite some time now – been on a historically low level. This makes real estate look affordable even though the real estate prices are rising. As a consequence, the credit volume has reached new historic heights as compared to the gross domestic product (GDP). This fact suggests that, when applying the analysis by the Bank of Japan economists to the Swiss real estate market, there is a risk of a real estate bubble. In Switzerland, this risk would be most present in urban centers, namely in Zurich and Geneva.
Countercyclical Capital Buffer Activated
Due to the real estate development described above, the Federal Council (Swiss government) activated the countercyclical capital buffer in February 2013 at the request of the Swiss National Bank (SNB). The countercyclical capital buffer has the purpose of strengthening the banks’ capital base. The measures taken will increase the capital requirements of banks associated with residential mortgage loans. The goal is to strengthen the banking sector’s resilience when changes in the real estate market occur. This approach is also expected to have a dampening effect on the dynamics of mortgage lending and therefore also on the dynamics of real estate prices. This will allow to weaken the consequences a real estate bubble could have. The Swiss National Bank had requested for this action to be taken by the Federal Council because an increase in lending and real estate loans had been observed over several years, which had created imbalances on the residential mortgage and real estate market. Based on the increased imbalance in 2012, SNB considered that the stability of the banking system and thus of the Swiss national economy was exposed to a greater risk. The countercyclical capital buffer will be in effect as of September 2013. It remains to be seen how effective the countercyclical capital buffer will turn out to be in practice, since this preventive measure is new and has not yet been tested under real life conditions.
Swiss Building Index
Despite the increased risk of a real estate bubble in Switzerland and the use of preventive measures, the Swiss building index forecasts a stagnation for the first quarter of 2013. The Swiss building index is assessed and published by the Swiss master builders’ association (Schweizer Baumeisterverband) on a quarterly basis. Since 2004, this index has been on a continuous rise, starting out at just under 100 points, now having reached a level of 132 points, while it was even at 137 points in the third quarter of 2012.
Major Foreign Investments in the Tourism Sector
The unrelenting rise in investments in major tourism projects in Switzerland by foreign financiers seems to be continuing. Most notable are the major residential building and hotel projects in central Switzerland around the Lake Lucerne. The Chateau Gütsch Hotel in the city of Lucerne had been purchased by a Russian oligarch in 2010 and is to be remodeled and extended to the tune of CHF70 million. The famous resort town Vitznau at the Lake Lucerne saw its Park-Hotel just reopen after renovations valued at CHF300 million. The investor is Peter Pühringer, one of the richest men in Austria. The Egyptian businessman Samih Sawiris, through his real estate group Orascom, is in the process of developing a holiday resort in the Andermatt hamlet at the foot of the Gotthard mountain pass in the Canton of Uri with a total investment sum of CHF1.8 billion. This project includes not only 500 triple-A holiday apartments in 42 buildings, 25 villas and 6 hotels, but also the modernization and expansion of the ski facilities around Andermatt. Another project in its realization phase is the reconstruction of the world famous Bürgenstock Resort in the vicinity of Lucerne. The state of Qatar is building a new resort complex with 3 hotels, 2 suite hotels offering 67 residence suites, 12 restaurants and a golf course, with an investment of about CHF500 million. The foreign investments in these major residential and hotel projects will not only allow the building sector to run at full capacity, but will, together with lending at low rates, also encourage private sector residential building around these new hotel projects. The region surrounding the Lake Lucerne has seen an annual rate of population growth of 12% on average during the last three years. The effect on the real estate market is a shortage of housing supply, which is another cause for the rise of real estate prices.
Second Home Initiative
On January 1, 2013, a new regulation concerning second homes entered into force. This new regulation is based on a decision by Swiss voters and has the purpose of regulating the building of second homes. It aims at avoiding residences remaining empty for most of the time. A second home is defined as any apartment or house that is not used on a permanent bases by either a person residing in the community or for business or training/educational purposes. The dwellings concerned by the initiative are located in the southern part of Switzerland and in the region of the Alps, with the cantons of Ticino, Graubünden and Valais being most affected. The newly passed regulation affects only the construction of new homes and has generally no effect on existing homes or those for which non-appealable permits have been issued. The new regulation will cause a price increase for these second homes. The prohibition of building second homes is applicable only to communities where such dwellings make up 20% of the total number of homes. However, the prohibition applicable as of this threshold does restrict housing supply and thus the housing market. The acceptance of the second home initiative is also a threat to the work force in the construction and real estate sector with an expected loss of about 8,000 jobs.
Real Estate - Switzerland
THE FIRM Baker & McKenzie climbs the rankings this year following substantial praise and recognition of its presence on many high-profile real estate mandates. In a major highlight the team advised Credit Suisse on the CHF1 billion sale of 'Uetlihof', its principal office complex worldwide, to Norges Bank Investment Management. The group covers a wide range of matters in this field and has particular expertise in tax and asset management mandates. Clients include Helvetica Property Investors and Swiss Finance and Property. The department also advised the Fundamenta Group on the set-up of an investment structure.
Sources say: "We use the team on complex transactions that require a sophisticated and innovative approach."
KEY INDIVIDUALS According to sources, department co-head Martin Furrer is a "fast-thinking and brilliant lawyer." He is mainly active on transactional mandates, winning praise for his excellent negotiation skills.
Alexander Wyss co-heads the practice's transactional group. He is particularly highly regarded for his knowledge of the set-up and structuring of real estate investment funds.
Daniel Peregrina is based in the firm's Geneva office. Sources label him as "a real player in this field. He is a deal-maker with a strong network."
Franz Schenker earns praise from market sources for his expertise in construction transactions.
THE FIRM Interviewees agree that this firm is a major force on the real estate market, highlighting the team's experience and responsiveness as particular strengths. The practice is focused on transactional matters, covering all aspects of real estate deals. It is regularly instructed on portfolio sales and share deals, representing both institutional and private investors. Its impressive client base includes Peach Property Group, AXA and Swiss Re.
Sources say: "The team is extremely responsive and delivers under pressure. It does a tremendous job."
KEY INDIVIDUALS Corrado Rampini is widely regarded as one of the leading figures on the real estate market. "He has a deep knowledge of this sector. He is focused on our principal needs and is extremely supportive and helpful," says a client. He is also commended for his negotiation skills.
Eric Stupp heads the financial services team at this firm. He has a broad practice and has notable expertise on the banking and corporate aspects of real estate transactions.
THE FIRM This large, ten-partner team covers the full spectrum of real estate mandates and has recently been active on real estate financings and transactions. It has bolstered its already enviable client base with several notable wins including Gold Tree and Toledo Capital. Recent highlights include the group's advice to UniCredit on the financing of the sale and leaseback of an office block, and Capita on various refinancing and sale transactions.
Sources say: "The team has some of the best lawyers I have worked with. I would never go to anyone else in Switzerland."
KEY INDIVIDUALS Johannes Bürgi garners extensive plaudits for his expertise in real estate financing transactions. Clients consider him to be an excellent practitioner and particularly value his commercial nous.
Francis Nordmann is "extremely efficient and responsible," say clients, who add: "He provides a perfect service and great know-how." He advises both institutional and private investors on the gamut of real estate matters.
Thomas Meister heads the firm's tax team and has particular experience on real estate financing transactions.
THE FIRM This respected team maintains a rounded real estate practice that is particularly highlighted by market commentators for its experience on construction matters. It is also regarded as a solid choice for public procurement work and other mandates involving public law. Other areas of activity include commercial leases, planning and environment work.
KEY INDIVIDUALS Founder Roland Hürlimann is hailed by sources as "the guru of construction law." He is regularly active on both international and domestic construction disputes.
THE FIRM The real estate group at this pan-European firm wins praise from peers for the strength of its practice. Recent work for the team has included project developments, sale and rent back transactions and assisting international corporations with their Swiss real estate activity. Credit Suisse Real Estate Asset Management is a major client for the team. It recently assisted the bank with the CHF175 million sale and rent back of a hotel portfolio. Other clients include Pramercia Overseas Funding, Acron and Gondrand.
KEY INDIVIDUALS Stefan Gerster is widely regarded as a "leading figure on the real estate market." He leads the firm's involvement with Credit Suisse.
Sources comment that newly promoted partner Sibylle Schnyder has an active practice, noting her particular strength on commercial leases.
THE FIRM With teams in Geneva and Zürich this firm is regularly instructed on nationwide real estate transactions. It draws its clients from a range of industries, including British and French banks, international investors and hotels. The group covers all aspects of real estate, including expertise in related areas such as real estate litigation, environment and tax.
KEY INDIVIDUALS Geneva-based Yves Jeanrenaud's broad practice encompasses real estate finance, investment, sale-and-leaseback transactions and environmental law. Clients are glowing in their praise, describing him as "charming, amenable and a pleasure to work with."
Zürich-based Josef Caleff leads the team and has a broad real estate practice, which extends from construction to M&A mandates.
THE FIRM This compact team is a key player on real estate across francophone Switzerland. The practice's core work covers advising multinational corporations on their Swiss premises, construction projects, investments in the Lake Geneva area and the real estate aspects of M&A transactions. It also advises private clients establishing in the region.
KEY INDIVIDUALS Team leader Yves de Coulon has a wide-ranging real estate practice, with notable strength in zoning and planning. He has recently been active on construction and litigation matters.
Manuel Bianchi della Porta is "extremely dedicated and always available," according to clients. He has particular expertise in zoning and planning issues and sources note his strength on transactional matters.
THE FIRM This ten-partner team is split between the firm's offices in Geneva and Zürich, and remains highly active in this sphere with a number of new client wins of late. It offers clients a comprehensive service, advising high net worth individuals, investment funds and real estate companies. Recent highlights include advising PubliGroupe on the sale of part of its property portfolio, and FidFund Management on a number of acquisitions.
KEY INDIVIDUALS Andreas Rötheli leads the firm's corporate and real estate practice, and has notable experience advising on transactional real estate mandates. He recently acted for Fides Properties on the sale of a property in Geneva.
Beat Kühni's broad practice encompasses corporate/M&A, private equity, banking and real estate. He is lauded for his constructive approach to transactions.
THE FIRM This team is instructed by both domestic and international investors, advising them on the acquisition, management and sale of real estate portfolios. It also advises financial institutions, insurance companies and pension funds on the full range of real estate mandates. In a recent highlight, it assisted Deutsch Anglen-Leasing with the sale of several of the company's Swiss properties for a total of more than CHF54 million. Other clients include AXA and Credit Suisse.
KEY INDIVIDUALS Department head Andreas Vögeli garners exceptional praise from market sources, who regard him as an excellent practitioner. "He really tries to find a solution and think the way we think. He is a goal-oriented, hands-on lawyer and a great negotiator," report clients.
THE FIRM The real estate team at this full-service domestic firm remains a strong choice for real estate financing and investment. The group is part of the large, market-leading corporate/M&A department and is often busy assisting with the real estate aspects of M&A transactions. The team's client roster includes large financial institutions, property developers and investment funds.
Sources say: "The quality and responsiveness of this firm is outrageously good."
KEY INDIVIDUALS Ueli Huber is the key contact at this firm.
THE FIRM This team undertakes the full range of real estate work in this area, with recent mandates including construction, lease and investment matters. The practice represents clients from across Europe, advising private equity houses, real estate companies and property groups. Sources note that the group has particular expertise in public law issues.
KEY INDIVIDUALS Delphine Zarb is a well-established, highly respected figure on the real estate scene. She has a broad practice that encompasses landlord and tenant, public procurement and construction issues.
THE FIRM This full service practice has recently been active on restructuring real estate portfolios, developments and lease negotiations. Clients include Implenia Development, Vernahof and Compagnie Financière de Promotion. Interviewees cite the team's responsiveness and focused advice as particular strengths.
KEY INDIVIDUALS Alexander Vogel is a key figure in the team and is active on its highest profile mandates. He has recently handled restructurings, sales and investments.
Armin Zucker is another respected partner in the group. He is particularly well known for his experience in commercial leases, with sources praising his "straightforward and commercial approach."
THE FIRM This compact team has won notable mandates in recent times, advising Johnson & Johnson on the real estate aspects of the sale of its trauma business to Biomet. The practice has also been active advising international investors on a range of real estate acquisitions and disposals and various other matters relating to their portfolios. Other work includes real estate disputes and advising private clients on residential matters.
Sources say: "The team is extremely knowledgeable and friendly and easy to work with."
KEY INDIVIDUALS Anne Imhoff and Michael Lipps co-head this team.
THE FIRM This domestic firm has real estate practitioners in its offices in Basel and Zürich. Recent work has included acquiring building permits, real estate disputes and due diligence on acquisitions. The team's strong client base includes investment and pensions fund and retail companies. The firm is also home to a property management company.
KEY INDIVIDUALS Thomas Wetzel is an experienced figure in the practice and is noted for his insights into the industry. He is a certified specialist in real estate and construction.
Basel-based Fabrizio Gabrielli of Kellerhals has extensive experience in construction, project development and real estate financing. He has recently advised clients in the hotel and leisure industry and the public sector.