The Real Estate M&A and Private Equity Review: Denmark

Overview of the market

The Danish real estate market is mainly dominated by property funds and real estate companies, of which the majority are privately held. The market for office properties is dominated by institutional investors, property funds and real estate companies seeking secure cash flows offered by the long leases usually attached to such properties. The residential segment is particularly dominated by property funds and real estate companies, whereas real estate companies, property funds and institutional investors contribute the main part of investments in retail properties.

While the office and residential segments have been predominant in recent years, investments in the logistics segment have recently attracted, and still continue to attract, increasing interest from investors. This trend was further escalated by the covid-19 pandemic, which caused the total transaction volume in the logistics segment to grow by 118 per cent in 2020 compared with 2019. The office segment saw a fall in the transaction volume in 2020 compared with 2019 mainly due to a shortage of attractive office properties located in Copenhagen. Transactions with hotel properties have generally been increasing over the years, particularly with institutional investors, domestic and foreign, being interested in this segment typically only investing in hotel property and not the associated operations. The hotel industry has been severely impacted by the outbreak of covid-19 as travel bans have been adopted across multiple countries. This led to a 96 per cent fall in the transaction volume in hotel properties in 2020 compared with 2019, with the total transaction volume in the hotels segment decreasing to only 160 million Danish kroner in 2020.

Despite the covid-19 pandemic causing an initial slowdown in the transaction volume in the second and partly the third quarter of 2020, the transaction volume recovered strongly in the fourth quarter with the last quarter of 2020 being the quarter with the highest transaction volume ever recorded in Denmark accounting for 47 per cent of the total volume in 2020. The strong fourth quarter of 2020 meant that the total transaction volume grew by 19 per cent compared with 2019, which can mainly be attributed to the logistics and residential segments seeing high growth. The retail segment has been slightly impacted by covid-19, but activity remains at a quite high level and 2020 saw a couple of major transactions within this segment. Domestic institutional investors have a significant presence in the Danish real estate market, where Danish pension funds in particular are increasing their investments in real estate. Pension funds are not only investing indirectly through property funds but are, to a large extent, investing directly in properties, including development projects, or providing financing by other means through various types of loans or bonds for acquisitions and the development of real estate.

Recent years have seen an increasing number of foreign investors entering the Danish real estate market, and in 2017 foreign investments surpassed investments from Danish investors for the first time. In 2019, Danish investments slightly surpassed foreign investments. In the past couple of years, foreign investments have mostly been concentrated in Copenhagen. The number of deals involving solely parties originating outside Denmark is also on the rise. Investors from Germany, Scandinavia, the US and the United Kingdom in particular are investing in Danish real estate, with Swedish real estate investors especially being active in the Danish market.

Foreign investors are mainly active in the office segment, focusing primarily on office properties located in prime locations, and the residential segment (mainly larger portfolios). However, they are increasingly interested in logistics properties.

International investors tend to stipulate requirements to a transaction documentation that deviate from what was customary in Denmark in the past. Transactions involving properties with significant commercial operations, such as hotel or retail properties, require bespoke solutions, which often entail a certain level of complexity as well as a need for thorough preparation. These transactions resemble M&A transactions more than ordinary real estate transfers in terms of structure, complexity, timing and process. This is also illustrated by the increase in the use of W&I insurances in real estate transactions.

Recent market activity

i M&A transactions

The most notable M&A real estate transaction in 2020 took place when the Swedish real estate company Heimstaden AB acquired the company HD Ejendomme including its entire portfolio of residential and commercial properties (152 residential properties containing a total of 6,237 residential units and 35 commercial properties comprising a total of almost 600,000 square metres) from the real estate company Niam, a transaction with a total value of 12.1 billion Danish kroner. This transaction was by far the largest transaction in the history of the Danish real estate market.

Another notable transaction comprising residential properties in 2020 was Capman Real Estate's acquisition of a residential property project with 463 residential units, which are under construction in Brøndby west of Copenhagen. The total floor area of the project will be more than 37,000 square metres. The project was sold by the Danish real estate company Casa at a price of approximately 1.1 billion Danish kroner.

Other segments than the residential segment have also seen notable M&A real estate transactions in recent years. Examples hereof include the Swedish real estate company Klövern's acquisition of the office building Kalvebod Brygge 32 in Copenhagen in 2019, which consists of more than 32,000 square metres office space. Klövern acquired the office building from Genesta, another Swedish real estate company, at a price of 1.4 billion Danish kroner.

The hotel segment also saw a notable transaction in 2019 when Midstar, a Swedish hotel investment company, purchased the Copenhagen Admiral Hotel at a price of 1.4 billion Danish kroner. The previous owner was a group of private investors and the transaction was by far the largest hotel transaction in 2019. With no notable hotel transactions in 2020, this transaction continues to be the largest hotel transaction in Denmark in the past few years.

Recent years have seen several transactions involving larger residential property portfolios, with Heimstaden AB being by far the most active investor. In 2018, Heimstaden, among numerous other acquisitions, acquired the TG Partners III fund from Thylander Gruppen at a value of 1.52 billion Danish kroner. The portfolio consisted of 25 properties divided into 1,400 flats, 50 commercial leases and almost 1,000 parking spaces located in, inter alia, Esbjerg, Arhus and Kolding, which are larger Danish cities. Another notable transfer took place in 2018 when Heimstaden acquired three properties from FB Gruppen at just under 1.2 billion Danish kroner. Transactions involving Heimstaden, as the buyer, made up more than 25 per cent of all transactions on the residential property market in 2020, mainly due to Heimstaden's above-mentioned acquisition of HD Ejendomme and its portfolio of properties.

This trend was also present in 2019 with several of the largest M&A transactions that year involving larger residential property portfolios. The largest residential portfolio transaction in 2019 was Bostad's acquisition of a portfolio of four residential projects located across Jutland, which Bostad acquired from Birch Ejendomme at a total price of 1.1 billion Danish kroner. Another notable M&A transaction in 2019 was Niam's acquisition of a portfolio of more than 300 residential units in Jutland at a price of approximately 500 million Danish kroner. Niam acquired the properties from Bach Gruppen and the transaction was the second largest transaction in the residential segment in 2019.

In 2020, only one out of the five largest residential property transactions involving an entire portfolio was an M&A transaction, which was Heimstaden's above-mentioned acquisition of Niam's portfolio, whereas the four largest remaining transactions within this segment were private equity transactions.

ii Private equity transactions

The largest residential private equity transaction in 2020 was the Danish pension funds Velliv and Industriens Pension's acquisition of a portfolio of three newly erected residential properties in Copenhagen and Aarhus from NREP. The portfolio consists of 521 residential units and a smaller number of commercial leases and has a total area of 50,928 square metres. The price of the acquisition is estimated at more than 1.8 billion Danish kroner. Other major residential transactions include Goldman Sachs' acquisition of more than 900 residential units from Birch Ejendomme at an estimated price of 1.5 billion Danish kroner and AXA Investment Managers' acquisition of a number of residential properties in Copenhagen and Aarhus, which it acquired from SF Management at an estimated price of more than 1 billion Danish kroner.

In 2020, the German pension fund Ärzteversorgung Westfalen-Lippe acquired the headquarters of Danske Bank in Copenhagen from Aberdeen Standard Investments at an estimated price of more than 2 billion Danish kroner, meaning that this was by far the largest transaction in the office segment in 2020. The property consists of 48,094 square metres spread out on a total of 15 buildings located in one of the most expensive parts of central Copenhagen.

Another major private equity transaction took place within the logistics segment in 2020, when Blackstone acquired NREP's portfolio of logistic properties in Denmark. The transaction comprised five properties with a total area of 190,000 square metres. The total transaction value is estimated at 1.8 billion Danish kroner.

Despite the covid-19 restrictions, 2020 also saw a few significant transactions involving retail properties, with Danske Shoppingcentre's acquisitions of Aalborg Storcenter, which is one of the largest shopping malls in Denmark, being the largest retail property transaction in 2020. Danske Shoppingcentre, which is owned by Danica Pension and ATP Ejendomme, acquired the Aalborg Storcenter from ATP Ejendomme at a price of 1.4 billion Danish kroner. The mall contains more than 64,000 square metres of floor area, of which 52,000 square metres consist of stores.

Real estate companies and firms

i Publicly traded REITs and REOCs – structure and role in the market

Currently, REIT structures are not used in Denmark, but there are a number of publicly traded real estate companies of varying size. The largest by some distance is Jeudan A/S, with a market capitalisation of approximately 13.19 billion Danish kroner, total assets of 28.6 billion Danish kroner and annual revenue of 1.53 billion Danish kroner.

Jeudan owns both commercial and residential properties in the Copenhagen area. Its portfolio primarily consists of commercial properties, including mainly office properties but also some retail properties in central locations in the Copenhagen area. Jeudan's business strategy is to continue investing primarily in office properties in Copenhagen with a long-term investment horizon.

In addition to Jeudan, only smaller real estate companies are traded publicly, none of which have a market capitalisation exceeding 1 billion Danish kroner, revenue exceeding 180 million Danish kroner or total assets exceeding 3.25 billion Danish kroner. These smaller companies do not play any significant role in the real estate M&A market, and only Jeudan is of a large enough size to engage in larger transactions. However, Swedish public real estate companies – mainly Heimstaden, Castellum, Akelius Residential Property AB, Fastighets AB Balder, Klövern and Wihlborgs Fastigheter – are very active in the Danish market and are able to carry out large investments.

In 2018, US investment firm Castlelake made a conditional tender offer through its Danish subsidiary for the shares in BoStad A/S with an advance commitment from Kvalitena Danmark AB, which owned 52.9 per cent of the shares and 63 per cent of the voting rights. Castlelake acquired the majority of the shares and voting rights in BoStad A/S through the conditional tender offer. In 2020, Castlelake's Danish subsidiary announced that it would be exercising its right to demand the redemption of the remaining shares in BoStad A/S from the minority shareholders in accordance with the Danish Company Act. Under the Company Act, a shareholder holding more than nine-tenths of the shares may demand that the other shareholders have their shares redeemed. BoStad A/S was subsequently delisted from the Danish stock exchange.

ii Real estate PE firms – footprint and structure

The real estate private equity market in Denmark is dominated by a few local players together with a group of foreign private equity firms. The main local players are Solstra Capital Partners, NREP and Core Property Management, which are all based in Copenhagen. In recent years, NREP has become a pan-Nordic player. In 2018, NREP announced a new fund, raising €900 million from mainly pension funds, insurance companies and sovereign wealth funds from the Nordic countries, Europe, the US and East Asia, making it the largest property fund in the Nordics to date. In 2020, Novo Holdings, part of the Novo Nordisk Trust, announced its investment of approximately 1 billion Danish kroner in NREP's newest fund.

The Danish operation of German fund Patrizia has also been very active in recent years both in the retail and residential segments, with Patrizia being the third largest real estate investor in Denmark in the period 2012–2020. Among the UK-based firms involved in recent major transactions are Coller Capital, Aberdeen Standard Investments, Savillis Investment Management, M7 Real Estate and M&G Real Estate. Swedish firms Niam and Svea Fastigheter have recently been party to significant transactions. Finland's CapMan has also been increasingly active in the Danish market during the past couple of years. Furthermore, non-European players are active in the Danish market, including US-based Blackstone and Hines and South Korean investors Vestas Investment Management and AIP Asset Management.


i Legal frameworks and deal structures

Typically, a real estate transaction in Denmark is structured either as a direct investment in the form of an asset deal or through a limited liability company or limited partnership in the form of a share purchase. However, the limited liability company is most frequently used for investments in real estate in Denmark as a result of the advantages attached to this structure.

The choice of deal structure depends on various factors, with tax or registration duty aspects being predominant, and which structure is most preferred depends on the circumstances of each specific transaction.

When structured as a share purchase, all the assets and liabilities in a company are transferred to the buyer by way of a transfer of the shares in the company. In contrast, when structured as an asset purchase, only the assets and liabilities that comprise the purchase agreement are transferred. The consequence of this is that any latent liabilities and risks, including pollution of the property, are, as the principal rule, not transferred to the buyer. However, in an asset purchase, the transfer of any contract requires consent from the contracting party, which is not necessary in the case of a share purchase, with the exception of contracts containing change-of-control clauses. The consent requirement in asset deals can be prevented by way of a partial demerger of the assets and liabilities to be transferred, as the Companies Act prescribes mandatory debtor substitution in such cases. Subsequently, the demerged company can be transferred as part of a share deal.

As a result of these factors, a deal's structure will often involve a prior corporate restructuring in the form of a demerger or contribution of assets, where the relevant property or portfolio of properties is transferred to a separate entity.

A share purchase requires consent from the selling shareholders, whereas an asset purchase can be resolved by the management of the selling company – typically the board of directors – without involving the shareholders. This is presumably the case even if the property in question is the only substantial asset of the company.

An important aspect when structuring a transfer involving residential properties is the tenants' mandatory right of pre-emption according to the Danish Rent Act. For properties with a minimum of 13 residential tenants, or six residential tenants if the property contains only residential tenancies, the tenants have a pre-emption right. Thus, unless the property has been divided into owner-occupied flats according to the Rent Act, the owner must offer the property to the tenants on a cooperative basis before disposing of it to a third party. The tenants must be offered the opportunity to purchase the property on the same terms as any outside purchaser has offered.

The right of pre-emption applies both when a property is transferred, including by merger, and if there is a change of control of the limited liability company owning the property. However, a change of control of a parent company (the holdco) to the property owning company (the propco) will not trigger the tenants' pre-emption right. The shares of the holdco may thus be transferred freely, whereas transfer of the shares in the propco triggers the pre-emption right if there is a change of control (i.e., the majority of the voting rights are transferred). It is a requirement for triggering the pre-emption right that the majority of the votes must be transferred to the same transferee. According to case law, a transfer of all the votes in a propco to three or more separate transferees, whereby none of them acquire control of the company, will thus not trigger the pre-emption right.

A different right of pre-emption applies when transferring residential properties reserved for senior citizens. Such properties must be offered to the municipality prior to a transfer to anyone else, but this pre-emption right does not apply to a transfer of shares in a limited liability company owning a property.

Another important factor in the choice of deal structure is registration fees. Registration fees are payable on the registration of a change of ownership and security rights over real estate. A transfer of the property in question will thus trigger a registration fee of 1,750 Danish kroner plus 0.6 per cent of the purchase price. However, if the buyer and the seller are not independent, the registration fee of 0,6 per cent may be calculated based on the public property value for residential properties or for other properties, such as commercial properties, an objective appraisal of property value. Registration of a mortgage triggers a registration fee of 1,730 Danish kroner plus 1.45 per cent of the mortgage sum; however, it is generally possible to make deductions corresponding to the value of the mortgages being replaced. By way of contrast, a share transfer of a limited liability company owning a property does not trigger any registration fee. In a change of ownership as part of a corporate restructuring (i.e., merger, demerger, transfer of assets or exchange of shares), the registration fee is reduced to a fixed amount of 1,750 Danish kroner. Hence, the variable part of the registration fee can be avoided by transferring the property in question to a separate company (a special purpose vehicle (SPV)) by way of a demerger or transfer of assets and, subsequently, transferring the shares in the SPV instead of transferring the property directly. This is commonly referred to as the dropdown model and is widely used. However, the use of dropdown should always be subject to an individual assessment in each case.

If a transaction involves a real estate company with securities listed on a regulated market in Denmark or another EU Member State, the company may have a duty to disclose the transaction to the market in accordance with the EU Market Abuse Regulation. The duty to inform the market arises if information about the transaction constitutes inside information.2 If information on a real estate transaction constitutes inside information, the company is required to inform the public as soon as possible of the information, but with an option to delay disclosure subject to certain conditions being met.

ii Acquisition agreement terms

Generally, agreements in Danish real estate M&A and private equity transactions are becoming more detailed and thorough. This is probably due to the influence of an increasing number of foreign investors in the Danish real estate market. Furthermore, there is to a large extent no law regulating such transactions, thus requiring a more thorough description of each party's rights and obligations within the agreement itself.

Consideration is typically a cash payment and, if relevant, the buyer's payment of any intercompany loans provided by the seller to the target company. The types of representations and warranties vary to a certain degree depending on whether a transaction is a share deal or an asset deal.

A share purchase agreement will usually contain a number of representations and warranties regarding various corporate matters. These will typically include representations and warranties relating to, inter alia, the parties' capacity to enter into the agreement, title to the shares, and that the shares are freely transferable and not subject to any encumbrances.

In respect of a property, a share purchase agreement will usually contain a representation and warranty to the fact that the company owns and has full and unrestricted title to the property in question. Similarly, an asset purchase agreement usually contains a representation and warranty to the fact that the seller has such ownership and title to the property.

Both share and asset purchase agreements generally contain representations and warranties with regard to a property. Typically, these include that the seller represents and warrants that the property is free from all material encumbrances, easements and mortgage deeds other than as set out in the purchase agreement. Furthermore, they may require that all due payments relating to the properties have been paid at the time of closing, including property taxes, and that all lease agreements relating to the properties have been disclosed and are legally binding.

With respect to the property in question, it is customary for the seller to represent that, to the seller's knowledge, its construction and utilisation is in accordance with applicable law and also that it is built in accordance with all regional and local development plans applicable to the property as well as easements registered on the property, and that there are no hidden defects.

Other representations and warranties by the seller may concern property insurances, lease agreements, pending cases or environmental matters relating to the property, and that there are no agreements or rights for sale, options or rights of pre-emption affecting the property other than the purchase agreement.

Closing conditions will typically include the buyer's obtaining of the necessary external financing, either fully or partially, as well as both seller and buyer documenting board approval of entering into and execution of an agreement. In a sale and leaseback transaction, conditions precedent to closing may include execution of a lease agreement pertaining to the property in question. The terms of the lease agreement will typically be agreed as part of the purchase agreement.

A mutual closing condition relating to a transaction involving residential properties may be that the tenants of the residential property in question do not exercise their pre-emption right according to the Rent Act. When transferring a portfolio of residential properties, the pre-emption right applies to each individual property. Hence, the purchaser will normally require a contractual right to stand down from the entire agreement or benefit from a price reduction if the pre-emption right is exercised for one or more properties.

The purchase agreement may contain an indemnification clause requiring a party to an agreement to hold the other party harmless from and against any loss subject only to the limitations set out in the agreement. The clause may preclude claims regarding consequential and indirect losses, including loss of goodwill, business, anticipated profits and similar losses. Typically, the loss would be determined in accordance with the general principles of Danish law, including the principles regarding mitigation of loss and limitation of losses resulting from acts by the party bringing the claim.

Liability may be limited in regards to both time and amount (de minimis, basket and cap) and exclude liability for certain claims, such as defects in a property, environmental and pollution matters, and the accuracy of particulars registered with the public authorities.

It is becoming more and more common in larger Danish real estate M&A transactions that a warranty and indemnity (W&I) insurance is taken out in favour of the buyer regarding the potential liability of the seller for breaches of the warranties given in the purchase agreement. This is in line with a general trend in the Danish M&A market where W&I insurance is becoming increasingly popular. As a consequence, it is typically agreed in the purchase agreement that the purchaser may only direct a warranty claim against the insurer, and only in the event of wilful misconduct or fraud may the claim be made directly against the seller. The premium of the W&I insurance will often be borne equally by both the purchaser and seller, but the purchase agreement may stipulate that either the purchaser or seller is to pay the full premium.

iii Hostile transactions

Hostile transactions rarely occur in Denmark. This is also the case for public real estate companies.

The last hostile bid for a public real estate company was William Demant Invest A/S' (WDI) tender offer to purchase all the shares in Jeudan in 2012. The tender offer was a consequence of WDI obtaining control of Jeudan, thus triggering the mandatory bid rule requiring the acquirer to make an offer for all the shares in the company. Hence, WDI had no intention of acquiring all the shares in Jeudan and made the tender offer only because it was legally obliged to do so. Therefore, the offer was not at a premium to the market price, and it was thus only hostile in the sense that the board of directors of Jeudan was recommending that the shareholders not accept the offer. Under these circumstances, the result of the tender offer was that WDI further acquired an insignificant number of shares in Jeudan, bringing its total holding to 41.6 per cent of the share capital.

iv Financing considerations

The prevailing way of financing real estate transactions is by way of loans secured by mortgages over the property in question. However, there are certain limits as to how much of a transaction it is possible to finance through mortgage loans. With regard to commercial properties, including office and industrial properties, it is only possible to finance up to 60 per cent of a property's value with mortgage loans according to the Danish Act on Mortgage Loans and Mortgage Bonds. The limit is 80 per cent for residential properties and generally 40 per cent for other properties, including undeveloped properties. The Danish mortgage system offers very low lending costs compared with the rest of Europe, making it desirable to leverage investments in real estate, which is particularly attractive for property funds.

The rest of the transaction value must be financed in other ways. This will often be through either equity contributions or ordinary second-tier bank financing on less favourable terms than mortgage loans but still with security in the property. Seller financing is also a possibility but is less often used as a way to finance transactions. In addition to security in the property, lenders may require other security instruments such as negative pledges, account pledges, share pledges, assignments of receivables and springing mortgages (mortgages initially not registered with the Land Register to save registration fees), but this depends on the will of the lender.

When structuring a transaction as an asset purchase, the buyer may legally provide the property as security to the lender that is providing the financing for the transaction. However, this is not necessarily a possibility in the case of a share purchase. Under Danish law, a limited liability company is subject to limitations in terms of financing an acquisition of shares in the company itself. According to the Danish Companies Act, a limited liability company may not, directly or indirectly, provide, inter alia, security for a third party's acquisition of shares in a company or its parent. Thus, the target company cannot put up the property as collateral for the buyer's financing of the acquisition. However, subject to certain conditions, the target company is allowed to provide financial assistance. Such legal financial assistance requires shareholder approval and must be provided at arm's length, and the board of directors of the target must issue a statement ensuring that the recipient is credit-rated. Finally, the financial assistance may not exceed the funds that can be distributed as dividends, and it must be reasonable having regard to the target company's financial position.

Owing to the limitations in a target company's ability to provide financial assistance, the financier of a share purchase will often obtain security in the shares in the target company. Such pledging is not subject to limitations according to the Companies Act.

v Tax considerations

There are significant differences in the tax aspects of a transaction depending on the deal structure.

In an asset deal, the seller, whether domestic or foreign, is taxed on the profit of the sale of the property and there is a right of deduction for losses incurred in this respect; however, the deductibility is generally limited to other profits on sales of properties, with the possibility of carrying the loss forward to subsequent income years. Furthermore, the seller is taxed on any recaptured depreciations. However, if the seller is considered a professional real estate trader, typically due to multiple investments in real estate with a short holding period, the deduction of losses is not limited to profits on sales of real estate, but may be deducted from any other profits. In a share deal, the seller is not taxed on any profit of sale of the property and, consequently, incurred losses are not deductible. Furthermore, a transfer of shares will generally not trigger any capital gains tax on the shares if the seller is a Danish limited liability company and the selling company holds at least 10 per cent of the shares in the transferred company. If these conditions are not met, the capital gain is taxed at the corporate tax rate of 22 per cent if the seller is a limited liability company.

If the seller is a foreign shareholder not subject to full tax liability in Denmark, any capital gains from the sale of shares will not be subject to taxation in Denmark. This is because capital gains from shares are not subject to limited tax liability under Danish tax law.

As a general rule, interest related to commercial activity in a company is tax-deductible, but interest deductions may be limited by three sets of rules: the thin capitalisation test, the asset test and the earnings before interest and taxes test. If these rules apply, it may be preferable to make a direct investment or invest through a tax-transparent entity, such as a limited partnership.

Corporate restructurings, including a demerger or transfer of assets, made prior to a transaction can be tax-exempted, and generally either with or without permission from the Danish tax authorities. However, certain conditions will apply to the tax-exempt restructuring, including a ban on selling the shares in the demerged or receiving company within three years of the restructuring. In general, it is possible, however, to obtain permission to carry out a tax-exempt restructuring without these conditions, provided that the contemplated transaction is commercially justifiable. Furthermore, it is worth taking into consideration that a tax-exempt restructuring may render tax losses carried forward from previous income years inapplicable as deductions against future income.

Generally, a transfer of property does not trigger any VAT; however, a sale of building land or newly constructed property is subject to VAT at a rate of 25 per cent of the transfer sum. VAT is not levied on such a transfer if it is part of an entire or partial transfer of business (going concern), such as an ongoing rental business. Generally, no VAT is due on the sale of shares in a company owning real estate, and thus a share deal does not trigger any VAT.

VAT must, inter alia, also be taken into considerations in situations where the owner of a property has deducted VAT because a property is constructed or acquired for VAT-taxable purposes, but who later decides to use this property for 100 per cent VAT-exempted purposes as previously deducted VAT may then have to be wholly or partially repaid to tax authorities. In some cases VAT may also be levied on the market value of the property because the amended use of the property for 100 per cent VAT-exempted purposes may be viewed as a transfer of the property.

vi Cross-border complications and solutions

Denmark has purchasing restrictions on foreigners' investments in real estate. These restrictions may make it difficult for many foreign investors to directly invest in real estate in Denmark without obtaining permission from the Danish Ministry of Justice. It is generally unlikely that such permission will be granted if a targeted property is purely an investment.

It is possible for citizens and companies from certain countries in the European Union to acquire properties in Denmark (e.g., if the purchase of the property is necessary for a company to conduct its business in Denmark).

However, these purchasing restrictions do not apply to Danish legal entities owned by foreigners. Hence, foreign investors generally choose to invest in Danish real estate through a Danish company or subsidiary. This can be done even if the sole purpose of the establishment of a company is to acquire the property in question.

Corporate real estate

There has been a slight trend to separate corporate real estate from operating companies by way of opco/propco separations. This has primarily been done by companies owned by private equity firms. In real estate-heavy companies, such as those in the retail and hotel sectors, private equity-owned companies have tended to separate a company's real estate from its operating company to divest either the propco or the opco, or as part of a complete exit from the investment through sales of both to different acquirers. Typically, the separation takes place by way of a demerger or a transfer of assets.

Furthermore, sale and leaseback transactions are becoming increasingly popular, with a significant growth in volume in recent years. Several of the largest Danish companies have engaged in sale and leaseback transactions disposing of domicile properties to release capital tied up in real estate and focus resources on their core business with the potential to generate a higher return on capital. The acquirers are typically institutional investors and private equity firms. Sale and leaseback transactions are expected to continue at a relatively high level.

The Danish mortgage credit company Jyske Realkredit A/S, for instance, sold its headquarters to the Danish pension fund PFA at a price of 640 million Danish kroner in 2018, and in 2019, Deloitte sold its office building located in Copenhagen to the Norwegian investor KLP Ejendomme for 1.4 billion Danish kroner. The trend with a high number of sale and leaseback transactions continued in 2020, where three of the five largest transactions in the logistics segment were sale and leaseback transactions. The most notable sale and leaseback transactions was the South Korean investor Vestas Investment Management's acquisition of the headquarters of the Danish transport and logistics company DSV Panalpina A/S, for which Vestas Investment Management paid an estimated 1.44 billion Danish kroner. Another notable sale and leaseback transaction concerned the grocery chain Rema 1000's sale and leaseback of its logistics center in Denmark to its owners, the Reitan Group, at an estimated price of 1 billion Danish kroner.


In the first three quarters of 2020, the Danish real estate market was like most other real estate markets globally affected by the outbreak of covid-19. The government has tried to curb the spread of covid-19 with the enactment of quarantine measures that, among other things, have caused businesses, in particular within the retail and food and beverages segment, to shut down temporarily. The outbreak of covid-19 has had a significant negative impact on the Danish economy, and initially affected the transaction volume across all segments of the real estate market because investors were generally more cautious.

Despite the covid-19 outbreak, the Danish real estate market remains attractive to both foreign and domestic investors (e.g., due to the possibilities for financing by way of mortgage loan). After a strong fourth quarter of 2020, the total transaction volume in 2020 landed at a level that was 19 per cent higher than the transaction volume in 2019, which proves the strong return of the Danish real estate market after the decrease in activity in the second- and third quarter of 2020. Although new covid-19 restrictions were imposed in Denmark in December 2020, the market activity has still remained at a high level in the first quarter of 2021. This high activity is expected to continue in 2021 as covid-19 restrictions are further eased.

The activity in the hotel segment is expected to start increasing again as travel activity is expected to return in the second half of 2021. However, it is expected that a return to pre-covid 19 conditions may take significantly longer, which could lead some investors to convert hotel accommodation into other types of accommodation, such as student accommodation or long-stay apartments, as some hotel owners have already carried out during the pandemic.

Investment activity in the logistics and residential segments is expected to continue at the same high level as in 2020. The activity in the office segment and the retail segments is expected to remain on the level as in 2020 or increase slightly, but from a lower starting point because the activity in these segments was low in 2020 due to covid-19.

It is expected that the focus on M&A and private equity transactions in the real estate market will continue. Additionally, the number of foreign investors in the Danish real estate market is expected to remain at a high level in the form of both private equity firms, property funds and real estate companies.

In October 2020, a majority of the Danish parliament made an agreement concerning a proposal for mark-to-market taxation of properties as a part of a financing package for a new pension reform. The intention of the proposal is that group companies owning rental properties with a combined value of more than 100 million Danish kroner must be taxed continuously on increases in the value of the properties, which constitutes a significant amendment to the current rules under which taxation generally does not happen until the property is transferred. The new rules will, however, also allow companies to deduct losses in the market value of the property without the company having realised an actual loss. It is not expected that such losses will be ring-fenced. The new rules are, inter alia, expected to apply to rental properties owned by companies, funds or associations, among others, subject to the standard corporation tax rate currently of 22 per cent of income. Properties owned by a company for its own business operations, such as for the purpose of production, administration and storage will be exempt from the rules. The mark-to-market taxation will be levied on the company owning the property and not on the shareholders.

A bill regarding the proposal is expected to be proposed and enacted in 2022 with an effective date from 1 January 2023. As a bill on the proposal has not yet been presented, the exact content of the new rules is not clear at this point. It is expected that value increases and losses ascertained after 1 January 2023 will be subject to the new taxation scheme, whereas gains and losses already ascertained at the time when the new rules come into force are subject to the existing rules under which taxation generally occurs when the property is disposed.

The exact impact of the proposal is yet to be seen. However, it is expected that the new rules may affect the activity in parts of the Danish real estate market if they are adopted because real estate companies, among others, must pay taxes on value increases on rental properties without having realised a profit from a sale of the property.


1 Alexander Troeltzsch Larsen and Michael Wejp-Olsen are partners at Gorrissen Federspiel. The authors would like to thank Simon Bronka, attorney, and Rasmus Godthaab Jespersen, associate, both at Gorrissen Federspiel, for their assistance in the preparation of this chapter.

2 Inside information is non-public information that would be likely to have a significant effect on the price of a company's securities.

The Law Reviews content