Acknowledgements	6
	Contents	7
	Contributing Authors	8
	Real Estate Transactions	11
	1 Real Estate Transactions	11
	1.1 Definition: What Makes Real Estate Different	11
	1.2 Overall Transaction Volume in Germany	12
	1.3 Different Transactions	13
	1.3.1 Location	14
	1.3.2 Asset Classes	14
	1.3.3 Risk-Return	15
	1.3.4 Financing	16
	1.4 Due Diligence: Origin, Legal Concept, Terms	16
	1.5 Functions and Objective of Due Diligence	18
	1.6 Subject of Due Diligence	21
	1.7 Sales Process	22
	1.7.1 Investment Memorandum	22
	1.7.2 Process Letter	23
	1.8 Due Diligence in the Context of Real Estate Transactions	24
	1.9 Legal Frame of Due Diligence	26
	1.9.1 Statutory Provisions	26
	Example	27
	1.9.2 Contractual Provisions	28
	1.10 Instruction of Advisors	28
	Example	29
	References	29
	Legal Due Diligence	31
	1 Introduction	31
	1.1 Purpose and Objective of Legal Due Diligence	31
	1.2 Sources of Legal Due Diligence	32
	2 Vendor Legal Due Diligence	32
	2.1 Preparation of the Data Room	32
	Example	33
	2.2 QandA Process Sequence	34
	2.3 Establishing Saleability	34
	Example	35
	2.4 Non-Disclosure Agreement (NDA)	36
	2.5 Legal Fact Book: Reliance Letter	36
	Example	37
	3 Buyer Red Flag Legal Due Diligence	38
	Example	39
	4 Initial Bid, Letter of Intent, Exclusivity	40
	4.1 Initial Bid	40
	4.2 Letter of Intent	40
	4.3 Exclusivity Agreement	42
	5 Buyer Full Due Diligence	43
	5.1 Detailed Examination	43
	5.1.1 Examination of Title: Land Register	43
	Example	44
	5.1.2 Lease Contracts	45
	5.1.3 Planning and Building Law	48
	Example	49
	5.1.4 Further Issues Regarding Share Deals	50
	5.2 Questions and Answers (QandA)	51
	5.3 Due Diligence Report	53
	5.4 Mark-Up SPA	55
	5.5 Final Bid	56
	6 Signing/Closing	57
	7 Conclusion and Outlook	58
	References	59
	Tax Due Diligence in Real Estate Transactions	60
	1 Introduction	60
	2 Tax Due Diligence in Asset Deals	61
	2.1 Introduction	61
	2.2 VAT	62
	2.2.1 VAT Treatment of the Acquisition of Real Estate	62
	2.2.1.1 Background: ``Transfer of a Going Concern´´ or Transfer of a Single Asset	62
	2.2.1.2 Practical Relevance for the Buyer	63
	Input-VAT-Adjustment Obligations	63
	Example	64
	VAT Treatment of the Sale of Moveable Assets	65
	Example	65
	2.2.1.3 Aspects to Be Reviewed in the Course of the Tax Due Diligence	66
	2.2.2 VAT Status and Treatment of Existing Lease Agreements	67
	2.2.2.1 Background	67
	Example	67
	2.2.2.2 Documents to Be Reviewed	68
	2.2.3 Assumption of Input VAT-Adjustment Obligations (§ 15a UStG)	69
	2.2.3.1 Background	69
	Example	69
	2.2.3.2 Practical Relevance for the Buyer	70
	2.2.3.3 Aspects to Be Reviewed in a Tax Due Diligence	70
	2.3 Trade Tax	71
	2.3.1 Background	71
	2.3.2 Documents and Information to be Reviewed	72
	2.4 Secondary Tax Liability of the Buyer for Taxes of the Seller	73
	2.4.1 Potential Tax Liability of the Buyer Pursuant to § 75 AO	73
	2.4.1.1 Background	73
	2.4.1.2 Aspects to be Reviewed in a Tax Due Diligence	74
	Tax Status Certificates (Bescheinigung in Steuersachen)	74
	Example	74
	Construction Withholding Tax	75
	2.4.2 Liability for Unpaid Land Tax	76
	2.5 Other Aspects	76
	2.5.1 Real Estate Transfer Tax	76
	2.5.1.1 Background	76
	2.5.1.2 Relevance for the Due Diligence	76
	Note	77
	2.5.1.3 Documents to Be Reviewed in a Tax Due Diligence	78
	2.5.2 Land Tax	78
	2.5.2.1 Background	78
	Example	78
	2.5.2.2 Relevance of Land Tax in a Tax Due Diligence	79
	2.5.2.3 Documents to Be Reviewed	79
	3 Tax Due Diligence in Share Deals	79
	3.1 Introduction	79
	3.2 Analysis of the Current Tax Status	80
	3.2.1 Status of Tax Filings and Tax Assessments	80
	3.2.2 Tax Audits	81
	3.2.3 Pending Appeals, Proceedings, Etc.	81
	3.3 Typical Potential Tax Issues to Be Reviewed	82
	3.3.1 Allocation of the Purchase Price to the Land and the Building	82
	3.3.2 Tax Depreciation	82
	3.3.3 Tax Losses	83
	3.3.3.1 Background	83
	Change-of-Control in a Corporate Entity	84
	Example	84
	Change-of-Control in a Partnership	84
	Forfeiture of Losses in Case of Certain Reorganisations	85
	Consequences for a Tax Due Diligence	85
	3.3.4 Deductibility of Interest Expenses	85
	3.3.4.1 Background	85
	3.3.4.2 Consequences for a Tax Due Diligence	87
	3.3.5 Trade Tax Aspects	87
	3.3.5.1 Trade Tax Aspects of Non-German Target Companies	87
	3.3.5.2 Extended Trade Tax Exemption for Real Estate Companies	88
	Limitation of Business Activities to Long-Term Investments	88
	Property Trading	89
	Lease of Business Fixtures	89
	Harmful Use by the Shareholder: Operational Company Split	89
	3.3.6 Transfer Pricing and Constructive Dividends	90
	3.3.6.1 Background	90
	3.3.6.2 Consequences for the Tax Due Diligence	90
	3.3.7 Real Estate Transfer Tax	91
	Example	92
	3.3.8 Other Aspects	93
	3.4 Specific Tax Aspects of Partnerships	93
	3.4.1 German Trade Tax Aspects	94
	3.4.2 German Real Estate Transfer Tax Aspects	94
	3.4.2.1 Change of Control Within a 5-Year Period	94
	Example	95
	3.4.2.2 Retroactive Denial of Previously Applied RETT-Exemptions	95
	Example	96
	4 Consequences of a Tax Due Diligence for the Investor	96
	References	97
	Financial Due Diligence	98
	1 Introduction	98
	1.1 Goals of Financial Due Diligence	99
	1.1.1 Reduction of Information Asymmetry	99
	1.1.2 Supporting the Valuation	100
	1.1.3 Reduction of Risks for Decision Makers	101
	1.1.4 Identify Adequate Risk Mitigation	101
	1.1.5 Supporting the Strategic Rationale of the Buyer	103
	1.2 Changing Approaches to Financial Due Diligence	103
	1.2.1 Changing Approaches to Conducting Due Diligence	104
	1.2.2 Phased Reporting in Financial Due Diligence	104
	1.3 Understand the Transaction	106
	1.3.1 General Understanding of the Transaction	106
	1.3.2 Understanding of the Equity Story	107
	2 Scope of the Financial Due Diligence	109
	2.1 Analysis of the Quality of Financials	109
	2.1.1 Purpose of the Analysis of Quality of Financials	109
	2.1.2 Key Hypotheses and Resulting Analysis	109
	2.1.3 Accounting Policies	110
	2.1.4 Audit of Financial Statements and Management Letters	111
	2.1.5 Quality of Management Reporting	111
	2.1.6 Historical Budgeting Accuracy	112
	2.1.7 Budgeting and Forecasting Process	112
	2.1.8 Internal Processes	113
	2.2 Analysis of the Quality of Earnings	114
	2.2.1 Purpose of the Analysis of Quality of Earnings	114
	2.2.2 Volume Basis	114
	Example	116
	2.2.3 Risk Allocation Between Tenants and Landlords	117
	2.2.4 Gross Rental Income	117
	2.2.4.1 Gross Rental Income vs. Passing Rents	117
	2.2.4.2 Development of New Contract Rents vs. Portfolio Rents	118
	Example	118
	2.2.4.3 Weighted Average Lease Tenure (WALT)	119
	2.2.4.4 EBITDAR Rent Coverage	119
	2.2.5 Vacancy Losses	120
	2.2.6 Like-for-Like or Stabilised Portfolio Analysis	120
	2.2.7 Recoverable and Non-recoverable Operating Costs	121
	2.2.8 Maintenance Costs	121
	Example	122
	2.2.9 Adjusted EBITDA	123
	2.2.10 Current Trading Analysis	124
	Example	125
	2.2.11 Financial Results	125
	2.2.12 Income Taxes and Other Taxes	125
	2.2.13 EPRA Earnings	127
	2.3 Analysis of the Quality of Net Assets	128
	2.3.1 Purpose of the Analysis of the Quality of Net Assets	128
	2.3.2 Key Hypotheses and Resulting Analysis	129
	2.3.3 Investment Properties	129
	2.3.3.1 Acquisition Costs and Fair Values	129
	2.3.3.2 Age Structure of Investment Properties	130
	2.3.3.3 Regional Footprint of Investment Properties	131
	2.3.4 Working Capital	132
	2.3.4.1 Recurring Levels and Working Capital Benchmarks	132
	2.3.4.2 Seasonality of Working Capital	132
	2.3.5 Debt-Like Items and Other Non-recurring Items	133
	2.3.5.1 Debt	134
	2.3.5.2 Debt-Like Items	134
	2.3.5.3 Cash and Cash-Like Items	134
	2.3.6 Equity	134
	2.3.6.1 Capital Maintenance Rules for Limited Liability Companies	137
	2.3.6.2 EPRA NAV and NNNAV	138
	2.4 Analysis of the Quality of Cash Flows	139
	2.4.1 Purpose of the Analysis of Quality of Cash Flows	139
	2.4.2 Key Hypotheses and Resulting Analysis	140
	2.4.3 Operating Cash Flow	140
	2.4.4 Investing Cash Flow	141
	2.4.4.1 Maintenance CAPEX and Tenant Improvements	141
	2.4.4.2 Acquisitions and Disposals	142
	2.4.5 Free Cash Flow	142
	2.4.6 Financing Cash Flow	143
	2.4.6.1 Debt Service	143
	2.4.6.2 Flow to Equity	144
	2.4.6.3 FFO and AFFO	145
	3 Conclusion and Outlook	147
	Appendix	148
	A.1 ICAEW ``Twenty Principles for Good Spreadsheet Practice´´	148
	A.1.1 The Spreadsheet´s Business Environment	148
	A.1.2 Designing and Building Your Spreadsheet	148
	A.1.3 Spreadsheet Risks and Controls	149
	A.2 FAST Principles	149
	A.2.1 Workbook Design	149
	A.2.1.1 General Workbook Design Principles	149
	A.2.1.2 Sheet Organisation	149
	A.2.1.3 Multiple Workbook Models	150
	A.2.2 Worksheet Design	150
	A.2.2.1 Universal Design Layout Principles	150
	A.2.2.2 Calculation Blocks	150
	A.2.2.3 Header Design	150
	A.2.2.4 Input Sheets	151
	A.2.2.5 Presentation Sheets	151
	A.2.2.6 Control Sheets	151
	A.2.3 The Line Item	151
	A.2.3.1 Line Item Taxonomy	151
	A.2.3.2 Formula Design Fundamentals	151
	A.2.3.3 Formula Simplicity	152
	A.2.3.4 Formula Clarity	152
	A.2.3.5 FAST Labelling Conventions	152
	A.2.3.6 Links	153
	A.2.3.7 Timing Flags and Partial Period Factors (PPFs)	153
	A.3 Excel Features Used in Modelling	153
	A.3.1 Excel Functions	153
	A.3.2 Formatting Features	153
	A.3.3 Excel Names	153
	References	153
	Technical Due Diligence	156
	1 Introduction	156
	1.1 Conceptual Framework	157
	1.2 Purpose and Objective of a Due Diligence	159
	1.2.1 Buyer´s Perspective on a Technical Due Diligence	159
	1.2.2 Vendor´s Perspective on a Technical Due Diligence	161
	1.3 Sources of Information	162
	2 The Process of a Technical Due Diligence	162
	2.1 Initial Phase	162
	Professional Indemnity Insurance	163
	Example	163
	Conflict of Interest	165
	2.1.1 Materiality Threshold	166
	2.2 Data Room Phase	167
	2.2.1 Information Memorandum	167
	2.2.2 Data Room	167
	2.2.3 Red Flag Report	170
	2.3 Phase I/Phase II Site Assessment	170
	2.3.1 Phase I Environmental Site Assessment	170
	2.3.2 Property Condition Assessment or Building Survey	172
	2.3.3 Site Visit	174
	2.3.4 Interviews	174
	Cover Story	175
	2.3.5 Reporting	175
	2.3.6 Phase II	176
	Selection of the Service Provider for a Phase II Investigation	177
	Example	177
	2.4 Contract Phase	178
	2.4.1 Technical Review of Contract Clauses	178
	2.4.2 Disclosure Lists	178
	2.4.3 Negotiation Support	178
	2.4.4 Reliance Letter and Contract Transfer Agreement	179
	2.4.5 Deal Closure	179
	2.4.6 Follow-up	180
	3 Methodology	180
	3.1 Data Collection	181
	3.1.1 Limitations and Safety	181
	3.1.2 Site History	181
	3.1.3 Permits/Acceptances	182
	3.1.4 Maintenance Status	182
	3.1.5 Development Options	183
	3.2 Assessment	183
	3.2.1 Basis: Regulatory Requirements	183
	3.2.2 Relevance Versus Materiality	183
	3.2.3 Top-Down Versus Bottom-Up Approach	184
	3.2.4 Rating of the Condition	185
	3.3 Cost Analysis	186
	3.3.1 Capital Expenditure for Deferred Maintenance Issues (Deferred Capex)	187
	3.3.2 Capital Expenditure Forecast	187
	3.3.3 Opex Analysis	189
	3.3.4 Reinstatement Costs	190
	3.4 Risk Transfer	190
	3.4.1 Contingencies	191
	3.4.2 Price Adjustments	191
	3.4.3 Warranties, Representations and Guarantees	192
	3.4.4 Indemnities	192
	3.4.5 Insurance Solutions	192
	3.4.6 Closing Conditions	192
	3.4.7 Retention	192
	4 Topics Covered by the Technical Due Diligence Assessment	193
	4.1 Technical Due Diligence Assessment	193
	4.1.1 Site Location: Topography, Setting, Neighbourhood	193
	4.1.2 Regional Planning and Zoning	193
	4.1.3 Building Permits and Building Code Compliance	194
	Example: Missing Construction Permits	194
	4.1.4 Building Envelope: Façade, Windows and Walls	195
	Example: Façade Failures	195
	4.1.5 Structural: Foundation and Framing	195
	Example: Mining Subsidence Damage in the Ruhr Area	195
	4.1.6 Roofing Systems	195
	4.1.7 Interior Elements: Stairways, Hallways, Common Areas	196
	4.1.8 Mechanical: Heating, Ventilation and Air Conditioning (HVAC) Including Indoor Air Quality	196
	Example: Sick of Air-Conditioning?	196
	4.1.9 Electrical Appliances: High/Low Voltage, Illumination, Security/Alarm Systems, CCTV and Building Automation Systems	196
	4.1.10 Plumbing	197
	Example: Biogenic Sulphuric Acid Corrosion (BSC)	197
	4.1.11 Vertical Transportation: Elevators and Escalators	197
	4.1.12 Fire Safety	198
	4.1.13 Energy Efficiency Including Energy Loss, Air Leakage and Roofing and Building Envelope Moisture Intrusion	199
	Example: Energy Audits as a Legal Duty	199
	4.1.14 Building Services, Operational Safety and Building Safety	199
	4.1.15 Exterior Areas	200
	4.1.16 Transport Connections and Accessibility	200
	4.2 Environmental Due Diligence Assessment	201
	4.2.1 Site History	201
	4.2.2 Site Sensitivity and Vulnerability	201
	4.2.3 Zoning and Environmental Permits	201
	4.2.4 Environmental Management	202
	4.2.5 Emissions	202
	4.2.6 Waste Management	202
	4.2.7 Water and Wastewater	203
	4.2.8 Storage and Handling of Hazardous Materials	204
	4.2.9 Soil and Groundwater	204
	4.2.10 Building Contaminants	206
	4.2.11 Environmental Risks and Resilience	207
	4.2.12 Unexploded Ordnance	208
	4.3 Social Due Diligence Assessment	208
	4.3.1 Corporate Level	209
	4.3.1.1 Different Perspectives	209
	4.3.1.2 Topics to Be Covered	209
	4.3.1.3 Health and Safety	209
	4.3.1.4 Labour and Workplace Conditions	209
	4.3.1.5 Training and Education	210
	4.3.1.6 CSR Reporting	210
	4.3.2 Asset Level	210
	4.3.2.1 Workplace Conditions	211
	4.3.2.2 Accessibility for Disabled Persons	211
	4.4 Governance	212
	5 Conclusion and Outlook	213
	References	214
	Erratum to: Real Estate Transactions	216
	Glossary	218