CEE Newsletter Fall 2011

November 2011

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Keeping Busy

To date, 2011 proved a very busy period with First Title in CEE insuring more than €1 billion across various markets. Many of the transactions came from the busy Poland and Czech Republic markets. There was also activity in Romania and Bulgaria.

While  some of these transactions involved defective title issues, First Title was often requested to insure where there were no known title defects. In these transactions clients used title insurance to replace representations and warranties.

There were two typical situations where clients found this useful. The first was for transactions in which the real estate investment fund had reached maturity, was selling to return funds to investors, and the principal or director was uncomfortable giving personal guarantees. The second was when new entrants to CEE markets saw the value of using title insurance as a way of reassuring their credit committees and so built this into the acquisition process. In both instances, clients benefited from First Title's extensive experience and knowledge of the CEE real estate markets; as well as the firm's expertise in effective risk management.

Title insurance is also increasingly being used by seasoned investors keen to manage risk. Many of these investors include a line in their letter of intent that includes the availability of title insurance as a subject -to purchase requirement knowing that the quality underwriting from First Title limits the investor's risk.
To learn more contact the CEE office at office@firsttitle-cee.com.

 

Where to in 2012?

As the ill-winds of economic uncertainty blow across the globe, businesses in CEE markets, as elsewhere, are grappling with the potential negative consequences of a fall in liquidity rates for economies.

Andrew Jackson, First Title's CEE Managing Director, shares these concerns, especially in relation to the dampening effect on real estate transactions. However, he also feels core property and mezzanine finance providers will still find - or make - opportunities as the world continues to deleverage and seeks safer investments - including commercial and industrial property in CEE markets. And, with manufacturers like Kia increasing production, at least some local CEE economies can be hopeful that workers will continue to spend their wages and support the retail growth that has been the story of 2011. Andrew's sense is that 2012 will see transactions happening, but with less smiling faces around the table. Contact Andrew at andrew.jackson@firsttitle-cee.com.

 

Title insurance: a few key points

Title insurance can be an effective way to manage risk, yet there is often a lack of understanding about the subject. So, here are some helpful facts:

  • Did you know that if you only insure land on a development an averaging provision will apply and in the event of a claim you will be paid pro-rata? It's better to insure for the whole project value.
  • Title insurance always has a one-time only premium.
  • Title insurance can be used effectively to insure wind farms, solar or photovoltaic plants, forests and agricultural land.
  • Fund managers can use title insurance to replace personal guarantees on exits.
  • Title insurance helps agents close more deals.
  • For lenders, title insurance facilitates syndication and sale of loans.
  • Title insurance simplifies transactions in multiple countries.

New proposal form 

The First Title Underwriting Team is constantly looking to improve client service and with this in mind has developed a new client-friendly title insurance Proposal Form. The form has a simpler layout with easier to use and clearer writeable fields. Check it out here or download it for your next project.

 

Q&A

In this edition of the First Title CEE newsletter we have gathered together questions we thought would be interesting to share.

A fund manager asks:
Q.Can I use title insurance to replace reps and warranties?

First Title responds:

A.This is an area where we are seeing more and more use of title insurance. A number of clients now build it into the entry and exit process. Even with relatively 'clean' properties, those with no known defects, it is being used to replace reps and warranties on title. Using title insurance in this way allows a fund to complete an exit more quickly and not have to hold contingent liabilities on the balance sheet for a number of years. The new buyer is also happier because they have a policy which will protect them for the duration of their ownership rather than just the few years a seller provides.

A developer asks:

Q.As a developer, we rely on title insurance both to address the title issues thrown up during the due diligence process and to cover us more generally. Our investment proceeds in stages as we receive planning permission and go through the building stage. Of course we need insurance cover from the first day of our project, but we do not need the full value of the development covered from day one. In the past, premiums for this form of cover have often been high. Is there a way we can get insurance cover at a premium that appears to reflect the real losses that we are exposed to at any given time?

First Title responds:

A.Traditionally, premiums in this insurance market have been calculated using the fully developed value of the insured land. Many insurers now appreciate that developers and their lenders need insurance cover from the first day of a project to protect the significant levels of investment required to get a development to planning stage, let alone beyond. First Title now provides more sophisticated structures, whereby cover is drawn down in stages. This has the effect of aligning the extent of cover at different stages of a development project more closely with the insured's actual exposure to loss - cover eventually matches the fully developed value, but the insured is not asked to pay for this until they are exposed to this level. With cover structured in stages, so is the premium, which means that the insured is not asked to pay the full premium at the outset.

If you have any questions you would like us to answer and you think might be of interest to other, please contact: Underwriting or office@firsttitle-cee.com.