Due diligence protocol 'to cut costs' for property investors

The European Association for Investors in Non-Listed Real Estate Vehicles (Inrev) has said the new Due Diligence Protocol for non-listed institutional real estate funds launched last week could significantly cut costs and bureaucracy for European property investors and fund managers alike, by establishing an industry-wide standard for this key part of the investment process. 'The current due-diligence system creates significant bottlenecks in the real estate fund investment process. From the fund managers' side they may have to process a large number of different questionnaires from investors,' said Jens Christian Britze, a member of Inrev's Due Diligence Protocol working group. 'From our perspective, if we can work with one core standard document, then it will leave more time to really study the distinctive points of fund offerings,' he added.

The new protocol was launched at Inrev's annual conference in Madrid and is divided into two main sections:

a). a recommended Questionnaire for Investment Evaluation. This is intended to assist an investor, or consultant, at the early screening stage of the due diligence process to understand relatively quickly a fund manager’s structure, strategy and real estate business and also a specific fund’s strategy, processes, management, terms and project performance.

b). a proposed structure for the Private Placement Memorandum (PPM). Inrev members have indicated that they would also prefer a degree of standardisation in the presentation of the details of a fund and a fund manager as they appear in a particular fund’s PPM. The main thrust of members’ opinion was that standardisation of the actual contents of the PPM would be too difficult, as each fund has their own style and technique for drafting these documents and considers them to be an integral part of marketing their fund. However, it was concluded that standard headings for the sections of a PPM should be produced by Inrev.

'We all know stock exchange prospectuses can be pretty dull and not user friendly and there's no reason why the non-listed real estate fund industry should go down that route, as the memorandum is essentially a marketing tool,'Deborah Lloyd, Chair of Inrev's regulatory committee said.

Separately, Inrev's Capital Raising Survey of fund managers shows that institutional real estate investors continued to pour billions of euros into European non-listed property funds last year. Inrev said this indicates the strong flows of capital into the sector will continue through 2007, particularly from US investors. The survey was presented at the association's annual conference in Madrid. It covered 63 institutional non-listed real estate funds, which raised EUR 10.2 bn in 2006. This is estimated to have encompassed nearly a third of the funds raising capital last year that were included in Inrev's database, which in turn accounts for approximately 80% of the value of the assets held by Europe's EUR 400 bn non-listed property fund industry.