Aon Property Eye - March 2016

Aon Risk Solutions
Real Estate
Risk. Reinsurance. Human Resources.
Introduction
A very warm welcome to Property Eye, Aon Real Estate’s review of important issues facing
investors, asset managers and professionals in commercial property.
Competition in real estate is certainly intense and Aon’s focus in this issue is how insurance can
help maintain momentum in your business. Deal making, development and operations; this
trio have all benefited from insurance solutions that smooth the way to success or completion.
With this in mind, Property Eye’s new structure covers all corners of the market…
For real estate investors, our mergers and acquisition specialists explain why both warranty
and indemnity and tax liability coverages are becoming more commonplace, helping deals
over the line and tying up loose ends that can emerge during due diligence.
Developers have had to keep a close eye on the Administrative Court during recent years,
where applications for judicial review of planning permissions continue to be a bugbear.
Mark Manwaring reports on how judicial review insurance is plugging the gap so that work
can move on quickly.
Asset managers will have a particular interest in our guest contribution from Allianz
Engineering Inspection Services (AEIS). With high footfall properties like shopping centres
relying on smooth operations for a steady income yield, AEIS says failure to monitor plant
machinery could be storing up problems in the future.
U.S. and Asia news; we bring an international perspective with despatches from the
company’s annual property symposium which took place in Orlando, Florida; and from our
Hong Kong office, where Andrew J Bisconte, says capital outflows are forcing buyers to
consider risks that are higher up the spectrum.
We conclude this issue with a 60 second interview with Gerald Ronson of Heron International
who shares his view on the potential impact of “Brexit” on the property sector and the future
of retail’s relationship with property.
In this Issue
1 Introduction
1 A toast to MIPIM 2016
2 Developers: No slowdown in
applications as developers seek
cover against judicial review
3 Investors: Remedies pursued
as transaction and tax risks
threaten deals
4 Operations & Asset Management:
Wear and tear going unnoticed
too often say experts
5 International: Aon’s US Property
Symposium breaks records
5 International: Capital outflows
from Asia forcing buyers to
ponder higher risk deals
6 60 Seconds with... Gerald
Ronson, Heron International
Property Eye
March 2016
A toast to MIPIM 2016
Will you be joining us at Cannes for this year’s conference? Aon has a team of more than a
dozen specialists attending the event and to kick things off, we’ll be hosting a Sundown Drinks
Reception on the evening of Tuesday 15 March at the JW Marriot Renoir Room & Terrace.
Our European team will be delighted to meet with you there and look forward to a fascinating
three days in the South of France.
If you’ve not received an invitation, please contact us at
real.estate@aon.co.uk
MIPIM 2016
We’ll be there.
Will you?

Property Eye | Aon Risk Solutions | March 2016 2
Optional Page/Section Header
Developers: No slowdown in applications as
developers seek cover against judicial review
1
Source: CityWire Money
2
Source: Source: Extract from COINS database, Administrative Court Office. April 2015
Attempts by government to stem the flow of judicial review (JR) applications
have made a negligible impact to date. Property Eye speaks with Aon’s legal
indemnity specialists who suggest Westminster policy could be storing up
further grounds for planning disputes. Mark Manwaring | Legal
Indemnity Director, Aon UK
In his Autumn Statement, Chancellor of the Exchequer
George Osborne told Parliament his government
would be investing £7bn in the building of 400,000
new homes across the UK. This has been part of a
consistent pro-development rhetoric over recent years
promising to smooth the path for real estate investors
and “get Britain building.1
”
Combined with tweaks by the Ministry of Justice to
make objecting to planning permission more difficult
(applicants now have just six weeks instead of three
months to file a JR application) the government has
definitely shown its hand.
However, Aon’s legal indemnity team is experiencing
what could be considered the reverse of Mr Osborne’s
plan. Mark Manwaring, Legal Indemnity Director at Aon
UK says; “The government has created a perception of
bias in favour of developers and this could be
promoting the use of judicial review against planning
permissions...
“...We’re not just talking about NIMBY’s here,” continues
Mark. “It can also be a vehicle for organisations with
deep pockets who might be pursuing delaying tactics
against rivals. As a result of all these factors, we have
seen demand increase amongst the real estate
investment and development community for something
that can help if their permission is quashed.”
Have JR applications peaked?
In 2013 JR applications for civil issues including
planning disputes peaked at just under 2200,
falling below 2000 in 20142
.
At present, Mark says awareness has yet to fully penetrate
the real estate investment community in terms of how
applicable JR insurance can be. “The perception is
improving, but we still receive enquiries from
developers asking whether the risk is insurable or not,”
he says. “In response, we’re able to explain that the
market is mature with good capacity and the products
are flexible; spanning a range of scenarios.”
For some developers, JR insurance is considered
well before planning permission is granted and is
factored into the project cost, providing indemnity
for legal defence and costs should the project be
cancelled or delayed.
“At the opposite end of the scale, we have a
‘catastrophe cover’,” adds Mark. “This can be placed
much later in the day if the risk is seen to be very high
and there’s a real and present danger of an application
being made. This often tends to forego the defence
costs of a JR hearing but can focus entirely on the
consequences of a quashed permission; cancelling
contracts, redesign of scheme, and ultimately
providing an indemnity for the difference in value
between the property with and without the proposed
planning permission.
Know your risk
Mark says the key first step for developers concerned
about JR will be to understand and assess what your
probable maximum loss could be if a permission is
quashed. “If you close the deal on day one after
permission is granted and six weeks later there’s a
successful application made, followed by months of
JR hearings in court, during which time you have
contractors sitting around idle and substantial interest
payments are mounting on debt, what are your losses
going to be?...
“...This will help create the policy limit and along
with information regarding the planning permission
and objections, the risk can be underwritten and a
quote provided.”
For more information, please contact
mark.manwaring@aon.co.uk

Investors: Remedies pursued as transaction
and tax risks threaten deals
The spectre of skeletons in the closet will be a familiar risk to real estate
investors. Property Eye speaks with Aon’s tax liability and warranty and
indemnity specialists to discover how insurance is helping deals cross
the line.
“No one in real estate acquisitions wants to face their
investment committee or their financial backers and
admit that they haven’t bought something they
thought they were buying,” declares Anka Taylor,
Director of Transaction Liability at Aon UK.
A stark assessment indeed, but Anka says the
insurance market is increasingly stepping in to
smooth out the risks created by potential human
error at every step of the M&A process.
“In today’s market, sellers will often reject bids that
do not include warranty and indemnity insurance
because long term liabilities for either side are
unpalatable. Historically the seller may have left
money in escrow, but this is becoming less and
less appealing when an off balance sheet option is
available.”
Typically, real estate investors will buy a ‘working
layer’ with general warranty cover that protects
against possible problems with the target company
such as mis-stated accounts or an unknown
litigation pending. Then this will be supplemented
by specialist layers for risks such as title.
A potential worst-case scenario recently stole the
headlines when problems encountered by the US
real-estate empire of Nicholas Schorsh, saw a
US$700m deal collapse owing to accounting
irregularities.3
Meanwhile, tax liabilities in the corporate vehicle
being acquired can be of equal concern, says
David McCann, Tax Liability Director at Aon UK.
“Her Majesty’s Revenue and Customs carefully
scrutinise offshore property holding structures.
The sellers of the vehicle you are acquiring may say
that the entity is resident outside the UK, but the
position is not always clear-cut. The directors of
the target may have originally planned to fly out to
board meetings every three months, but due
diligence may find that in fact a meeting or two
has been held in London. Do you accept the risk
that the company is actually resident in the UK and
has a potentially large tax liability or do you seek
out options to mitigate?”
Discount, Cancel or Indemnify?
David points out how investors are using tax
liability insurance alongside warranty and
indemnity insurance to achieve their objectives.
“Where a tax risk is identified in due diligence and
there is a disagreement between the buyer and
seller on the materiality of that tax risk, the parties
can reach an impasse. The seller is not willing to
reduce the price or grant an indemnity, while the
buyer is not comfortable signing the deal without
some protection. Here, a third party insurance
policy can unlock the deal.
“Sellers, especially private equity or real estate
funds, have targets on their returns and tying up
cash in escrow works against this. If you can use
insurance as a substitute for a conventional
indemnity and escrow, capital isn’t trapped.
Insurers are typically charging a one off premium
of between 2-5% of the sum insured, covering the
lifetime of the issue.”
In both cases, W&I and Tax Liability markets are
served by competitive markets willing to
underwrite suitable risks. In the latter case, David
adds that insurers have been upping their
capability. “There’s been a clear effort from many
insurers to bring in underwriters who have a tax
specialism. This should benefit clients, because it
speeds up the insurer’s analysis of the risk and
reassures that the initial view of a risk will be an
informed one; this in turn reduces the odds of
obstacles arising during the underwriting process.”
For more information, please contact
real.estate@aon.co.uk
3
Source: Wall Street Journal – November 3rd
2014 Soured Deal sets Schorsch Firms Feuding
Anka Taylor | Transaction
Liability Director, Aon UK
David McCann | Tax Liability
Director, Aon UK

Operations & Asset Management: Wear and
tear going unnoticed too often say experts
Almost one in seven escalators and moving walks examined by a leading
engineering inspections company have revealed serious defects.
Glyn J. Amphlett | Chief
Engineer, AEIS
Described as issues which are “considered to be a
danger to persons”, Allianz Engineering Inspection
Services (AEIS) looked at more than 1800
escalators and moving walks during a three month
period in 2015 and found 13.4% showed signs of
increasing abuse, misuse and negligence.
Glyn J. Amphlett, Chief Engineer at AEIS said that
negative perceptions about restricting access and
a lack of awareness of the risks are contributing to
this trend.
“With slips, trips and falls the most common injuries
associated with these machines, they should be a
prime consideration for any risk assessment, but it
seems that some companies may cite the logistical
challenges of putting an escalator out of action so
that its moving parts can be inspected as a reason
to avoid regular, six monthly examination.”
Within the workplace, escalators and moving walks
are covered by Regulation 19 of the Workplace
(Health, Safety & Welfare) Regulations 1992.
However the majority are in non-workplace
environments (shopping centres; shops; airports;
railways stations etc.) and therefore the legislation
does not apply.
“It’s essential that property owners look to the
Safety Assessment Federation (SAFed) guidelines
instead,” adds Glyn.
“The guidelines for the safe operation of escalators
and moving walks have been developed in
consultation with the Health and Safety Executive
so that owners and other duty holders can
understand and discharge their responsibilities
and duties in a safe, cost-effective and consistent
manner,” he says. “They include recommendations
on risk control and reduction to help prevent
accidents as well as technical advice on testing and
examination, report formats and suitable periods
between examination and tests.”
Describing the range of potential hazards
including ‘voids’ or ‘step and skirt gaps’, the risk
of accident or injury is very real, says Glyn.
“Given our regular inspections uncover a
significant number of problems, the SAFed
guidelines suggest an inspection at six monthly
intervals, particularly for those experiencing high
levels of pedestrian flow. Owners have a clear duty
of care to their users and with the right approach,
inspection and maintenance can be carried out
without disruption in a cost effective way.”
For full details
the reader is advised to refer to the
published guidelines freely available
from safed.co.uk

International: Aon’s US
Property Symposium
breaks records
International: Capital outflows from Asia
forcing buyers to ponder higher risk deals
With Asian markets rarely far from the headlines, Andrew J. Bisconte,
Director of Strategic Account Management, Asia at Aon Risk Solutions
has provided a bird’s eye view of real estate investment in the region.
He says that “significant capital outflows” from Asia into the
UK, Europe, USA and Australia and intense competition are
“forcing buyers to consider deals higher on the risk curve
which generate a shift in their portfolio risk profile.”
Despite these challenges, Andrew says the market is
presenting some opportunities.
“On the flip side, emerging markets in Asia offer international
buyers the opportunity to buy into growing economies on the
ground floor but need to consider the commensurate risks
associated with doing business in these markets.
“Abundant insurance capacity exists in Asia where almost all
international markets are present, predominantly
headquartered in Singapore with full authority for both
underwriting and claims settlement,” he says.
Aon typically bases global and regional programmes in Hong
Kong and Singapore, taking advantage of soft market
conditions, preferred deductibles and enhanced coverage.
“We see an increased interest from international firms looking
to develop regional Asia programmes that include Japan to
cover their assets in order to maintain a focus on compliance
and coverage as their Asian portfolios reach thresholds of
US$1bn and above,” continues Andrew. “Domestically, we see
firms taking a closer look at their risk transfer strategy,
specifically natural catastrophe probable maximum loss
exposure and centralising their insurance programmes to take
advantage of previously untapped economies of scale.”
Following Aron’s story which famously
became the subject of the 2010 film
127 hours, the event included the CEO
Roundtable, which was broadcast live.
Mike Crowley, Tom Fitzgerald, Paul Horgan,
Kevin Kelley, John Lupica, and Joe Tocco
discussed the state of the insurance market
and the impact of consolidation on insureds.
Aon’s annual Property Symposium is the
industry’s largest gathering of buyers,
insurance and brokers where several days are dedicated to meeting,
strategising and navigating the property insurance marketplace.
A record breaking 950 clients, underwriters and
colleagues attended our Property Symposium
on February 2 in Orlando, Florida with guests
treated to the fascinating tale of amputee
canyoneer Aron Ralston as the keynote speaker.
Andrew J. Bisconte | Director,
Strategic Account Management,
Aon Hong Kong
Aron Ralston

60 Seconds with... Gerald Ronson,
Heron International
1. What initiative (or issue) has had the greatest single impact on the property sector in the course
of your career?
Over the last 50 years, governments, councillors and committees have come and gone but
regardless of their ideas and initiatives, the one factor that has had the greatest impact on the
property market has quite simply been population growth. The number of people in the world
is growing and people will always need places to live and to work. These fundamentals mean
that the government needs to encourage development and the property market continues to
be attractive.
2. What will be the biggest challenge facing the property sector over the next five years?
Building enough homes to accommodate our growing population will be our biggest challenge
and should be the sector’s number one priority over the coming five years. Homes take a long
time to build and the planning process, as well as shortages of skilled labour and materials, mean
that supply is not meeting demand.
3. From a property perspective, what can regional cities learn from London and vice-versa?
What sets London apart from the other cities of the UK is not just its status as the capital but the
fact it is a global business city. This is reflected in the quality of its buildings, which are developed
to international standards of design and finish, as well as in its infrastructure, which, although in
need of constant investment, is designed to keep swathes of people moving around the city.
While regional cities can learn from London in terms of gearing up for population growth and
attracting major global businesses and investment, London and the regional cities are inherently
different and should embrace the fact that the opportunities they offer – and target markets to
which they cater – are not necessarily the same.
4. Europe – what would the consequences of an “out” vote be for the property sector?
An ‘out’ vote would be disastrous for the property sector and the economy more generally.
London’s location within Europe is a major contributing factor to its position as the financial capital
of the world. Removing ourselves from Europe would make us less competitive against places such
as Switzerland and Frankfurt for commercial and residential property investors and as a destination
for headquarters buildings for international businesses.
5. Where do you see the future for retail’s relationship with property?
We are already seeing retail increasingly moving online with more and more people choosing
to buy groceries, white goods, clothes and electronics online rather than on the high street.
The influence of this shift in behaviour is significant for the property market: requirements for
shops, and retail parks are morphing into requirements for distribution centres; the supermarkets
are stemming their land-grab to develop large-format stores and instead favouring convenience
stores that enable top-up shops between online-shop deliveries; and the high street today is
about creating a destination for a day out – with cafés, restaurants, bars, cinemas and gyms rather
than pure retail.
These trends are nothing new: for a long time I have invested in convenience retail through my
network of almost 200 UK petrol stations, and I also developed the Heron City concept – destinations
that combine retail, leisure and entertainment – and developed these across Europe.
6. What alternative career might you have pursued had you not gone into property?
I have been fortunate enough to have many careers – across property, retail and the motor
industry. Ultimately I enjoy spotting opportunities, doing deals and making things better.

About Aon
Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance
brokerage, and human resources solutions and outsourcing services. Through its more than 69,000 colleagues
worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people
solutions. For further information on our capabilities and to learn how we empower results for clients,
please visit: http://aon.mediaroom.com/
Aon UK Limited is authorised and regulated by the Financial Conduct Authority. Aon UK Limited Registered Office: The Aon Centre, The Leadenhall
Building, 122 Leadenhall Street, London, EC3V 4AN. Registered No. 210725.  VAT Registration No. 480 8401 48. Some links on this website may
redirect you to third party sites. Aon is not responsible for this content. Telephone calls are recorded and may be monitored. © 2016 Aon UK Limited.
FPNAT194
Property Eye should not be construed as giving opinions, assessment of risks or advice of any kind (including but not limited to actuarial, re/insurance,
tax, regulatory or legal advice). The content of Property Eye is made available without warranty of any kind and without any other assurance whatso-
ever as to its suitability for any purpose, completeness or accuracy.
Aon UK Limited trading as Aon Global Risk Consulting does not accept any liability to any Recipient or third party as a result of any reliance placed
by such party on the articles within Property Eye. Any decision to rely on the contents is entirely the responsibility of the Recipient. The Recipient
acknowledges that Property Eye does not replace the need for the Recipient to undertake its own assessment or seek independent and/or specialist
risk assessment and/or other relevant advice.

Aon Property Eye - March 2016

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Aon Property Eye - March 2016