rics.org/guidance RICS guidance note RICS professional standards and guidance, Europe Real estate risk management under the Alternative Investment Managers Directive (AIFMD) 1st edition, November 2017
rics.org/guidance
RICS guidance note
RICS professional standards and guidance, Europe
Real estate risk management under the Alternative Investment Managers Directive (AIFMD)1st edition, November 2017
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
RICS guidance note, Europe
1st edition, November 2017
Published by the Royal Institution of Chartered Surveyors (RICS)
Parliament Square
London
SW1P 3AD
UK
www.rics.org
No responsibility for loss or damage caused to any person acting or refraining from action as a result of the material included in this publication can be accepted by the authors or RICS.
Produced by the Luxembourg Professional Group Board, with the support of Ben Elder, Global Valuation Standards Director, of the Royal Institution of Chartered Surveyors.
ISBN 978 1 78321 207 1
© Royal Institution of Chartered Surveyors (RICS) November 2017. Copyright in all or part of this publication rests with RICS. Save where and to the extent expressly permitted within this document, no part of this work may be reproduced or used in any form or by any means including graphic, electronic, or mechanical, including photocopying, recording, taping or web distribution, without the written permission of RICS or in line with the rules of an existing licence.
Typeset using Typefi.
rics.org
Copyright acknowledgment
The extract from the INREV Style classification snapshot is reproduced with permission from INREV.
Acknowledgments
RICS would like to thank the following for their contributions to this guidance note:
Co-authors
Frederik Leser MRICS (Pancura)
Julien Sporgitas MRICS (Altus Group)
Jean-Eric Vimont MRICS (JEV IM)
Jürgen Wiegand MRICS.
Working group
Keith Burman FRICS (MPL Group)
Jean-Philippe Carmarans MRICS (DTZ)
Karl Delattre FRICS (Cromwell Property Group)
Alessandro Carlo Garavaglia (Invesco Real Estate Management)
Blazena Grossmann MRICS (Hines)
Fiona Haggett FRICS (RICS)
Seppo Koponen MRICS (Seppo Koponen Consulting)
Wenceslas Moussa (Aviva Investors)
Zsolt Toth (RICS)
Wendy Verschoor FRICS (CBRE).
RICS Professional Groups lead
Ben Elder FRICS
RICS Publishing
Head of Publishing and Content: Sarah Crouch
Standards Publishing Manager: Antonella Adamus
Standards Publishing Project Manager: Georgia Brambilla
Editor: Ruth Wilkie
ii RICS guidance note, Europe Effective from 1 March 2018
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
Contents
Acknowledgments �������������������������������������������������������������������������������������� ii
RICS professional standards and guidance �������������������������������������������� 1
1 Introduction ������������������������������������������������������������������������������������������ 3
1.1 Purpose ....................................................................................... 3
1.2 Target audience ........................................................................... 3
1.3 Effective date ............................................................................... 3
2 The role of the AIFM real estate risk manager ��������������������������������� 4
2.1 Main tasks and key challenges ..................................................... 4
2.2 Types of controls performed by the AIFM real estate risk manager ...................................................................................................... 4
3 Defining the approach of the AIFM real estate risk manager ��������� 5
3.1 Identifying key risks ...................................................................... 5
3.2 Tailoring the AIFM real estate risk management framework .......... 5
3.3 Considering the life cycle of a real estate investment .................... 6
4 Implementing valuation controls �������������������������������������������������������� 7
4.1 Independent valuation review process ......................................... 7
4.2 Scope and frequency of independent valuation review ................ 7
4.3 AIFM real estate risk manager involvement .................................. 7
5 Conclusion ������������������������������������������������������������������������������������������� 8
Appendix A: Core office risk matrix ���������������������������������������������������������� 9
Asset level risks (unlevered and levered) ................................................. 9
Fund level risks ..................................................................................... 13
Appendix B: Glossary ������������������������������������������������������������������������������� 15
rics.org
iiiRICS guidance note, EuropeEffective from 1 March 2018
RICS professional standards and guidance
RICS guidance notesThis is a guidance note. Where recommendations are made for specific professional tasks, these are intended to represent ‘best practice’, i.e. recommendations that in the opinion of RICS meet a high standard of professional competence.
Although members are not required to follow the recommendations contained in the guidance note, they should take into account the following points.
When an allegation of professional negligence is made against a surveyor, a court or tribunal may take account of the contents of any relevant guidance notes published by RICS in deciding whether or not the member acted with reasonable competence.
In the opinion of RICS, a member conforming to the practices recommended in this guidance note should have at least a partial defence to an allegation of negligence if they have followed those practices. However, members have the responsibility of deciding when it is inappropriate to follow the guidance.
It is for each member to decide on the appropriate procedure to follow in any professional task. However, where members do not comply with the practice recommended in this guidance note, they should do so only for good reason. In the event of a legal dispute, a court or tribunal may require them to explain why they decided not to adopt the recommended practice.
Also, if members have not followed this guidance, and their actions are questioned in an RICS disciplinary case, they will be asked to explain the actions they did take and this may be taken into account by the Panel.
In some cases there may be existing national standards that may take precedence over this guidance note. National standards can be defined as professional standards that are either prescribed in law or federal/local legislation, or developed in collaboration with other relevant bodies.
In addition, guidance notes are relevant to professional competence in that each member should be up to date and should have knowledge of guidance notes within a reasonable time of their coming into effect.
This guidance note is believed to reflect case law and legislation applicable at its date of publication. It is the member’s responsibility to establish if any changes in case law or legislation after the publication date have an impact on the guidance or information in this document.
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1Effective from 1 March 2018 RICS guidance note, Europe
Document status definedRICS produces a range of professional standards, guidance and information documents. These have been defined in the table below. This document is a guidance note.
Publications statusType of document Definition Status
StandardInternational standard An international high-level principle-based standard
developed in collaboration with other relevant bodies.Mandatory.
Professional statementRICS professional statement (PS)
A document that provides members with mandatory requirements or a rule that a member or firm is expected to adhere to.
This term also encompasses practice statements, Red Book professional standards, global valuation practice statements, regulatory rules, RICS Rules of Conduct and government codes of practice.
Mandatory.
Guidance and informationRICS code of practice Document approved by RICS, and endorsed by another
professional body/stakeholder, that provides users with recommendations for accepted good practice as followed by conscientious practitioners.
Mandatory or recommended good practice (will be confirmed in the document itself).
Usual principles apply in cases of negligence if best practice is not followed.
RICS guidance note (GN)
Document that provides users with recommendations or approach for accepted good practice as followed by competent and conscientious practitioners.
Recommended best practice.
Usual principles apply in cases of negligence if best practice is not followed.
RICS information paper (IP)
Practice-based information that provides users with the latest technical information, knowledge or common findings from regulatory reviews.
Information and/or recommended best practice.
Usual principles apply in cases of negligence if technical information is known in the market.
RICS insight Issues-based input that provides users with the latest information. This term encompasses thought leadership papers, market updates, topical items of interest, white papers, futures, reports and news alerts.
Information only.
RICS economic/market report
A document usually based on a survey of members, or a document highlighting economic trends.
Information only.
RICS consumer guide A document designed solely for use by consumers, providing some limited technical advice.
Information only.
Research An independent peer-reviewed arm’s-length research document designed to inform members, market professionals, end users and other stakeholders.
Information only.
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
2 Effective from 1 March 2018RICS guidance note, Europe
1 Introduction
The Alternative Investment Fund Managers Directive (AIFMD) has made risk management one of the fundamental functions for real estate investment funds. Although the Commission Delegated Regulation (EU) No 231/2013 supplementing the Directive (Level II) has further clarified the type of risks that need to be addressed for alternative assets, specific guidance on real estate risks has not yet been provided.
Given the importance of real estate for Europe’s alternative investment fund industry (according to the INREV Vehicles Universe Q2 2017, there are 456 funds with total gross assets under management of 280 billion euros), RICS Europe has produced this guidance note to provide guidance to AIFMs on risk management for real estate investment funds. The guidance note is the outcome of a thorough consultation with senior industry professionals responsible for risk management within tier one institutional real estate asset management firms. RICS and the authors of this guidance note would like to thank all contributors for their valuable feedback during several rounds of consultation.
For the avoidance of doubt, we would like to emphasise that this guidance note has been written from the perspective of the AIFM real estate risk management function. In accordance with the Directive, the AIFM is responsible for the following three main functions:
• portfolio management
• risk management
• valuation.
In most cases, AIFMs will be supported by either a portfolio manager or an investment advisor to fulfil their day-to-day duties in relation to portfolio management (respectively through a delegation of the portfolio management function or an outsourcing of different investment management tasks via a service agreement). Moreover, it is clear that real estate risk management (e.g. with respect to risks at the level of real estate assets, portfolios and funds) is already embedded in the day-to-day duties and responsibilities of investment advisors. In this context, the role of the AIFM risk management function will be to ensure proper oversight of day-to-day risk management performed by the investment advisor and either executing or overseeing existing controls, including independent reviews and assessments of the work performed by the investment advisor.
This guidance note therefore assumes that risk management is generally implemented through three lines of defence:
• the investment advisor or portfolio management function as first line of defence
• the AIFM risk management function as second line of defence and
• the internal audit function of the AIFM as third line of defence to ensure that the overall internal control system and risk management framework operate effectively.
1.1 PurposeThe purpose of the guidance note is to:
• create a standard library of real estate industry risks
• develop specific guidance on real estate risk management to assist AIFMs on questions such as:
– what the role of the AIFM real estate risk manager is
– what the specific checks and controls that need to be implemented by the AIFM risk manager are
– how to identify key risks for the various property sectors and real estate investment styles
– which type of risks should be emphasised throughout the real estate investment life cycle (i.e. acquisition, holding, disposal phase)
• provide an example of an AIFM real estate risk management framework for a direct European core office fund (Appendix A: core office risk matrix).
It is anticipated that the AIFM real estate risk management framework in Appendix A could serve as a basis for real estate funds investing in other real estate sectors and/or applying different investment styles.
A glossary is provided in Appendix B for information purposes.
1.2 Target audienceThis guidance note is relevant to:
• RICS members
• real estate professionals and
• the wider AIFM stakeholders’ community, including AIFM real estate risk managers, investment/portfolio managers, investment advisors, investment/valuation committee members, board members and investors.
1.3 Effective dateThis guidance note is effective from 1 March 2018.
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2 The role of the AIFM real estate risk manager
2.1 Main tasks and key challengesThe main tasks to be fulfilled by the AIFM real estate risk manager can be summarised as follows:
• identify key risks and determine key risk indicators
• set limits/thresholds for key risk indicators in accordance with the risk profile of the fund
• measure or monitor key risk indicators
• perform or supervise stress tests and sensitivity analysis on given key risks
• monitor risk mitigating steps and follow up on remedial actions in case of exceptions or breaches
• report to the board of the AIFM (highlighting exceptions and remediation actions) and
• ensure that appropriate risk management disclosures are made to investors and the required risk reporting is provided to regulators.
To fulfil these tasks, the AIFM real estate risk manager needs to have a clear understanding of the underlying real estate assets and the investment strategy of the fund. He or she also needs to have the ability to interact with various stakeholders (e.g. fund manager, fund controller, asset/portfolio manager, investment advisor, property manager, etc.) in order to address questions timely.
Furthermore and in compliance with the AIFM Directive, it is important to note that the AIFM real estate risk manager has timely access to all relevant reports that exist within the organisation in order to perform its duties effectively.
In this context, the board of the AIFM acts as escalation point.
2.2 Types of controls performed by the AIFM real estate risk managerThe types of controls generally fall into two categories:
• Controls based: the AIFM real estate risk manager leverages off existing controls implemented by the first line of defence that cover the various activities of the fund (e.g. acquisition, asset/portfolio management, debt management, etc.). It requires the AIFM real estate risk manager to have a clear understanding of the roles and responsibilities of the various stakeholders of the fund (such as portfolio, asset and property managers, investment advisors and fund controllers) as well as a clear overview of the internal
reporting process. The AIFM real estate risk manager will need to ensure that the controls in place are appropriate, effectively documented and performed on a regular basis. Where there are control deficiencies, the AIFM real estate risk manager should discuss them with the relevant stakeholders and escalate/report any findings to the AIFM Board together with a remediation plan.
• Detailed testing: the AIFM real estate risk manager directly performs specific tests of detail. This covers activities such as investment restriction reviews, independent valuation reviews, performance calculation reviews, financial model reviews and stress testing. These specific tests usually include tasks such as:
– sample checks performed on specific reports (e.g. reconciliation, mathematical checks, accuracy, completeness and consistency)
– challenging key data by requesting and reviewing adequate supporting documentation (e.g. valuation assumptions, performance assumptions, etc.).
The frequency of controls (for both controls based and detailed testing) generally depends on the risk type, the characteristics of the fund (e.g. open-ended versus closed-ended, investor reporting requirements, etc.) and regulatory requirements. The AIFM real estate risk manager needs to prioritise tasks by assessing key risks based on his or her professional knowledge and experience.
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
4 Effective from 1 March 2018RICS guidance note, Europe
3 Defining the approach of the AIFM real estate risk manager
3.1 Identifying key risksThe characteristics of the underlying real estate assets are key in developing the AIFM real estate risk management framework. Therefore, a ‘bottom-up approach’ needs to be taken, with:
• a first phase focusing on key risks present at asset level (e.g. asset quality, quality of tenants, lease duration, valuation, etc.) and
• a second phase focusing on key risks present at fund level (e.g. investment restrictions, fund performance, tenant/industry concentrations, etc.).
It is useful to highlight that potential tax and legal risks associated with typical multi-layer real estate fund structures (i.e. fund-holdco-SPV) are usually considered as fund level risks.
3.2 Tailoring the AIFM real estate risk management frameworkGiven the variety of risk/return profiles in real estate, there is no ‘one-size-fits-all’ approach for real estate risk management.
One of the objectives of the AIFM real estate risk manager is to ensure that the risk profile of the underlying real estate assets (both individually and in aggregate) are in line with the investment style of the fund and risk appetite of its investors, so as to ensure that the AIFM is in alignment with its mandate.
3.2.1 Determining the investment styleThe investment style classification defined by INREV provides guidance to the AIFM real estate risk manager to differentiate between the main real estate investment
strategies (i.e. core, value-added, opportunity) according to indicators such as % loan-to-value (LTV) or % target return derived from income, as shown in the INREV table below.
3.2.2 Setting risk limits and thresholdsThe determination of quantitative and qualitative risk limits and thresholds enables the AIFM real estate risk manager to better tailor the risk management framework to the specific risk profile of a fund.
Such limits and thresholds are applied to key risk indicators, which (for some of them) are specific to a given property sector. Commonly used indicators for income-producing assets are, among others:
• % occupancy rate
• WALB (weighted average lease period until the first break option)
• % LTV and compliance with other debt covenant ratios (e.g. ISCR, DSCR)
• credit quality of tenants
• geographical, tenant and industry concentration.
The standard set of key risks is fairly similar for most income-producing real estate assets regardless of the property sector. For example, an LTV ratio or a WALB will be common key risk indicators across the different property sectors. However, certain business risks can be sector specific, such as % turnover rent or the occupancy costs-to-sales ratio for a retail asset.
As the case may be and in accordance with INREV investment style classification, European core office funds might opt for an up to 5% (re)development investment exposure. Commonly used key risk indicators for (re)development projects are, for example:
• % of pre-let rentable area
• credit quality of developer.
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5Effective from 1 March 2018 RICS guidance note, Europe
Core
≤ 40%
Core
> 40%Value added Opportunity
Target percentage non-income producing investments
≤ 15% > 15% – ≤ 40% > 40%
Target percentage of (re)development exposure
≤ 5% > 5% – ≤ 25% > 25%
Target return derived from income
≥ 60%
Maximum LTV ≤ 40% > 40% > 40% – ≤ 60% > 60%
The above table from the INREV Style classification snapshot is reproduced with permission from INREV.
3.3 Considering the life cycle of a real estate investmentThe life cycle of real estate investments – from acquisition to holding and disposal phase – has a great influence on key concerns, risks and priorities of the AIFM real estate risk manager.
3.3.1 Acquisition phaseGiven the inherent illiquidity of real estate assets, a particular focus should be given at the acquisition stage.
The key objectives of the AIFM real estate risk manager at the acquisition stage are:
• to ensure that the risk profile of the target investment is aligned to the investment style and risk profile of the fund and
• to identify any issues from the due diligence that need to be addressed prior to the closing of the acquisition and reported to the investment committee or the board of the AIFM.
In order to achieve this, the AIFM real estate risk manager will usually adopt a controls based approach focusing on tasks performed by the investment advisor on key areas such as:
• legal, tax, financial, environmental and technical due diligence findings (ensuring that all potential risks have been identified and properly reported)
• asset valuation (ensuring that target assets have been properly valued, in accordance with market standards, and that underlying valuation assumptions are reasonable) – it is considered to be best practice for European core real estate investment funds to value real estate prior to the acquisition
• key portfolio ratios and indicators (ensuring that key metrics are in line with targets and the investment style of the fund, e.g. debt covenants, WALB, vacancy, internal rate of return, etc.)
• reporting on the sustainability characteristics of the asset, including social aspects (ensuring assessment of obsolescence risk)
• coordination and review of legal agreements.
It is therefore fundamental for the AIFM real estate risk manager to be involved in the early stages of the acquisition process and to perform the initial risk assessment before the letter of intent is issued, and the detailed risk assessment before the transaction is subsequently approved by the investment committee and/or the AIFM. Furthermore, the AIFM real estate risk manager should ensure that key risks have been appropriately addressed and documented in the investment memorandum supporting the acquisition.
3.3.2 Holding phaseDuring the holding phase the priority of the AIFM real estate risk manager changes towards monitoring the effectiveness of existing controls to mitigate risks that have
been identified during the initial due diligence or that may occur during the holding period.
Moreover, monitoring and reporting on potential changes (e.g. with respect to the overall performance of the fund) or breaches of risk limits or thresholds and following up on potential remedial actions is central to the role of the AIFM real estate risk manager in this phase. The frequency of the risk analysis could vary by product, but it is reasonable to link it to the NAV calculation frequency. Stress testing and back testing techniques are used to support the monitoring and assessment exercise. These assessments should be conducted at least on a yearly basis.
3.3.3 Disposal phaseDuring the disposal phase of assets and the liquidation and wind up of the fund thereafter, the AIFM real estate risk manager will usually again adopt a controls based approach focusing on tasks performed by the investment advisor on key areas such as:
• timing of the disposal process and market value of the assets considering their liquidity, the business plan, the impact of the disposal on fund risk and the term of the fund
• due diligence on the selected bidders (e.g. solvency, reputation etc.)
• contractual obligations, guarantees and commitments resulting from the disposal/ liquidation process.
The AIFM real estate risk manager should ensure that such key areas have been appropriately addressed and documented in the disposal memorandum supporting the transaction.
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
6 Effective from 1 March 2018RICS guidance note, Europe
4 Implementing valuation controls
4.1 Independent valuation review processGiven that the AIFM is responsible for the valuation of the assets of the fund, the AIFM real estate risk manager needs to ensure that an independent, transparent and documented valuation review process is implemented irrespective of the valuation model adopted by the AIFM (internal v external valuation model) and the related impacts on liability (see article 19 of the Directive 2011/61/EU and also refer to the RICS Briefing Note dated February 2015 on Valuations in accordance with the Alternative Investment Fund Management Directive, available at www.rics.org/Documents/Alternative%20Investment%20Fund%20Managers%20Directive.pdf).
The valuation review process should also be independent from the portfolio management function as well as from the investment advisor and should at least include the following tasks:
• checking the independence (e.g. organisational charts, remuneration policy, past appointments, conflicts of interest, etc.) and competence/professional qualifications (e.g. RICS Registered Valuer accreditation) of the external appraiser
• ensuring that the appointment of the external appraiser complies with local regulatory requirements and professional standards (e.g. IVS and RICS Valuation – Global Standards, the ‘Red Book’)
• checking the accuracy and completeness of the valuation source data provided by the property/asset manager to the external appraiser (i.e. rent rolls, capex budgets, etc.)
• checking the accuracy, consistency and completeness of the external appraisers’ report, and in particular the rationale used to select the valuation methodology/model(s) and the documentation supporting the underlying valuation assumptions (such as comparables for example)
• reviewing the value changes (or the absence thereof) between two review cycles.
The consistency of the valuation methodology over time and across the various assets of the fund should also be checked by the AIFM real estate risk manager.
4.2 Scope and frequency of independent valuation reviewThe scope (i.e. limited or full review) and frequency of the independent valuation review will depend on the characteristics and reporting requirements of the fund (i.e. open-ended v closed-ended, frequency of property valuation, frequency of NAV calculation and of investor
reporting, etc.). However, the frequency of the review should at least be annual.
4.3 AIFM real estate risk manager involvementIt is of paramount importance for the AIFM real estate risk manager to be involved in the various steps of the independent valuation review process by either performing the review him or herself (if the appropriate competence and skills are in place) or by having proper oversight on the review process performed by an independent third party reviewer.
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7Effective from 1 March 2018 RICS guidance note, Europe
5 Conclusion
The set-up of the AIFM real estate risk management function might be specific in each and every real estate business organisation, as it depends, for example, on the size of the organisation, the amount of assets under management and the available resources.
On the other hand, there is no doubt that AIFMD has increased the need for qualified and industry-knowledgeable personnel at the level of the AIFM, which is
of paramount importance to properly carry out its duties, notably with respect to risk management. Indeed, AIFMs are facing increased pressure and scrutiny to demonstrate appropriate substance, independent controls and oversight. This currently represents a challenge for AIFMs looking to hire staff with adequate real estate competence, skills and experience.
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
8 Effective from 1 March 2018RICS guidance note, Europe
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nanc
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itut
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hol
ding
ca
sh d
epos
its/
loan
s
Cred
it r
atin
gs o
f fin
anci
al in
stit
utio
nsD
ecre
ase
of c
redi
t qua
lity
of
finan
cial
inst
itut
ions
D
iscu
ss, d
ocum
ent a
nd t
rack
dia
logu
e (i
.e. d
ecre
ase
in c
redi
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lity
tem
pora
rily
acc
epta
ble,
init
iati
ves
take
n to
clo
sely
mon
itor
cou
nter
part
y so
lven
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tc.)
Rev
iew
gov
erna
nce
proc
ess
(e.g
. met
hodo
logy
to
dete
rmin
e co
unte
rpar
ty s
olve
ncy,
use
of s
ever
al
inde
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ourc
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ount
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in t
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wap
Cred
it r
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OTC
co
unte
rpar
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ecre
ase
of c
redi
t qua
lity
of
finan
cial
inst
itut
ions
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
10 Effective from 1 March 2018RICS guidance note, Europe
Risk
cat
egor
yRi
skKe
y ri
sk in
dica
tor
(KRI
)Ri
sk d
escr
ipti
on/
expl
anat
ion
Expe
cted
con
trol
s/pr
oces
ses
Chec
ks to
be
perf
orm
ed b
y th
e AI
FM R
M
Liqu
idit
y ri
skLi
quid
ity
of a
sset
sTr
ansa
ctio
n vo
lum
e tr
end
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age
tran
sact
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size
Mar
keti
ng p
erio
d tr
end
Dec
reas
e in
liqu
idit
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the
ass
etAt
acq
uisi
tion
: liq
uidi
ty o
f ass
ets
to b
e an
alys
ed
by t
rans
acti
on t
eam
and
rep
orte
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estm
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com
mit
tee’
pap
er
Dur
ing
hold
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and
disp
osal
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iqui
dity
of a
sset
s to
be
mon
itor
ed b
y as
set/
port
folio
man
ager
and
re
port
ed t
o fu
nd m
anag
er
At a
cqui
siti
on: r
evie
w, c
omm
ent a
nd s
ign
off t
he
‘inve
stm
ent c
omm
itte
e’ p
aper
pri
or t
o tr
ansa
ctio
n ap
prov
al
Dur
ing
hold
ing
and
disp
osal
pha
se: o
btai
n an
d re
view
as
set/
port
folio
man
ager
rep
ort
Exte
rnal
fina
ncin
gEx
tern
al fi
nanc
ing
mat
urit
ies
Inab
ility
to
refin
ance
wit
hin
exte
rnal
fina
ncin
g m
atur
itie
s At
acq
uisi
tion
: ext
erna
l fina
ncin
g/co
vena
nts/
hedg
ing
to b
e st
ruct
ured
by
tran
sact
ion
team
in li
ne w
ith
inve
stm
ent s
trat
egy
and
repo
rted
in ‘i
nves
tmen
t co
mm
itte
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aper
Dur
ing
hold
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phas
e: fu
nd c
ontr
olle
r to
mon
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ex
tern
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nanc
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cove
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s/he
dgin
g an
d re
port
to
fund
man
ager
(in
clud
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rem
edia
tion
act
ions
)
At a
cqui
siti
on: r
evie
w, c
omm
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nd s
ign
off t
he
‘inve
stm
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omm
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aper
pri
or t
o tr
ansa
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n ap
prov
al
Dur
ing
hold
ing
phas
e: o
btai
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d re
view
fund
co
ntro
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epor
t
% b
orro
win
gs h
edge
dEx
posu
re t
o in
tere
st r
ate
vola
tilit
y du
e to
low
rat
io o
f bor
row
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he
dged
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l bor
row
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ach
of d
ebt
cove
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sLT
VB
reac
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LTV
rat
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CR (
NO
I/de
bt
serv
ice)
Bre
ach
in D
SCR
ICR
(EB
IT/i
nter
est
expe
nse)
Bre
ach
in IC
R
rics.org
11Effective from 1 March 2018 RICS guidance note, Europe
Risk
cat
egor
yRi
skKe
y ri
sk in
dica
tor
(KRI
)Ri
sk d
escr
ipti
on/
expl
anat
ion
Expe
cted
con
trol
s/pr
oces
ses
Chec
ks to
be
perf
orm
ed b
y th
e AI
FM R
M
Busi
ness
risk
Asse
t lev
el r
ent d
ata
(mic
ro-e
cono
mic
ris
k)%
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upan
cyD
ecre
ase
in o
ccup
ancy
of t
he
prop
erty
bas
ed o
n re
nts
or t
otal
le
asab
le a
rea
At a
cqui
siti
on: a
sset
leve
l ren
t dat
a to
be
anal
ysed
by
tra
nsac
tion
tea
m t
o ch
eck
alig
nmen
t wit
h in
vest
men
t str
ateg
y an
d re
port
ed in
‘inv
estm
ent
com
mit
tee’
pap
er
Dur
ing
hold
ing
phas
e: a
sset
man
ager
to
mon
itor
as
set l
evel
ren
t dat
a an
d is
sue
‘ass
et le
vel’
repo
rt t
o fu
nd m
anag
er (
incl
udin
g re
med
iati
on a
ctio
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At a
cqui
siti
on: r
evie
w, c
omm
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ign
off t
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‘inve
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ent c
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aper
pri
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ansa
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n ap
prov
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Dur
ing
hold
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phas
e: o
btai
n an
d re
view
‘ass
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d ov
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nder
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ass
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Dec
reas
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B
Incr
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ver-
rent
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sset
s
% le
ase
brea
ks <
2
year
sIn
crea
se o
f % le
ases
wit
h br
eak
wit
hin
2 ye
ars’
tim
e
Loca
tion
of t
he a
sset
Dec
reas
e in
the
‘pri
me’
att
ribu
tes
of a
loca
tion
(CB
D, d
ecen
tral
ised
, pe
riph
eral
)
Obs
oles
cenc
eG
ener
al c
ondi
tion
of
the
bui
ldin
g w
ith
resp
ect t
o su
stai
nabi
lity
and
soci
al s
usta
inab
ility
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reen
cer
tific
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ns,
etc.
)
Gen
eral
con
diti
on o
f the
bui
ldin
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po
or o
r is
dete
rior
atin
gAt
acq
uisi
tion
: per
form
tec
hnic
al a
nd e
nvir
onm
enta
l du
e di
ligen
ce (
DD
)
Dur
ing
hold
ing
phas
e: a
sset
man
ager
/pro
pert
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anag
er t
o m
onit
or m
aint
enan
ce p
rogr
am, f
ollo
w-u
p on
DD
item
s an
d is
sue
‘tec
hnic
al s
tatu
s re
port
’
At a
cqui
siti
on: e
nsur
e te
chni
cal d
ue d
ilige
nce
is
prop
erly
per
form
ed
Dur
ing
hold
ing
and
disp
osal
pha
se: o
btai
n an
d re
view
‘t
echn
ical
sta
tus
repo
rt’
Dev
elop
men
t ris
k (a
s th
e ca
se m
ay b
e)%
Pre
-let
% v
acan
cy a
nd a
ssoc
iate
d co
sts
At t
he o
utse
t: d
eter
min
e m
inim
um %
pre
-let
bef
ore
star
ting
con
stru
ctio
n
Dur
ing
cons
truc
tion
: fun
d m
anag
er o
r ass
et m
anag
er
to m
onit
or le
ttin
g pr
oces
s
Obt
ain
and
revi
ew s
tatu
s re
port
Ret
enti
on o
f pla
nnin
g/
build
ing
perm
it
(as
the
case
may
be)
Del
ays
in t
he a
dmin
istr
ativ
e pr
oces
s to
get
aut
hori
sati
ons
or c
hang
es r
esul
ting
from
the
ad
min
istr
ativ
e pr
oces
s
Fund
man
ager
or a
sset
man
ager
to
mon
itor
pr
elim
inar
y st
udie
s an
d ad
min
istr
ativ
e pr
oces
s;
asse
ss im
pact
on
perf
orm
ance
(e.g
. IR
R)
Obt
ain
and
revi
ew s
tatu
s re
port
Cost
ove
rrun
s an
d de
lays
in c
onst
ruct
ion
Non
-com
plia
nce
wit
h in
itia
l bu
dget
and
del
iver
y da
te d
ue
to v
aria
tion
s, m
ism
anag
emen
t an
d un
fore
seen
eve
nts
duri
ng
cons
truc
tion
At t
he o
utse
t: t
echn
ical
spe
cific
atio
ns t
o be
de
term
ined
und
er t
he c
ontr
ol o
f fun
d m
anag
er o
r as
set m
anag
er
Dur
ing
cons
truc
tion
: fun
d m
anag
er o
r ass
et m
anag
er
to m
onit
or c
onst
ruct
ion
prog
ress
; ass
ess
impa
ct o
n pe
rfor
man
ce (e
.g. I
RR
)
At t
he o
utse
t: e
nsur
e sp
ecifi
cati
ons
are
avai
labl
e
Dur
ing
cons
truc
tion
: obt
ain
and
revi
ew s
tatu
s re
port
Cred
it r
atin
g of
de
velo
per/
con
trac
tor
Def
ault
of d
evel
oper
/con
trac
tor
duri
ng t
he d
evel
opm
ent o
r co
nstr
ucti
on p
roce
ss
At t
he o
utse
t: fu
nd m
anag
er t
o pe
rfor
m fi
nanc
ial d
ue
dilig
ence
Dur
ing
cons
truc
tion
: fun
d m
anag
er t
o m
onit
or
coun
terp
arty
sol
venc
y
At t
he o
utse
t: e
nsur
e fin
anci
al d
ue d
ilige
nce
is p
rope
rly
perf
orm
ed a
nd a
dequ
ate
lega
l do
cum
enta
tion
is in
pla
ce
Dur
ing
proc
ess:
obt
ain
and
revi
ew s
tatu
s re
port
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
12 Effective from 1 March 2018RICS guidance note, Europe
Risk
cat
egor
yRi
skKe
y ri
sk in
dica
tor
(KRI
)Ri
sk d
escr
ipti
on/
expl
anat
ion
Expe
cted
con
trol
s/pr
oces
ses
Chec
ks to
be
perf
orm
ed b
y th
e AI
FM R
M
Ope
rati
onal
risk
Poo
r ass
et a
nd
prop
erty
man
agem
ent
Qua
lity
of r
epor
ting
, co
mpl
ianc
e w
ith
inst
ruct
ions
and
de
adlin
es
Poo
r ass
et/p
rope
rty
man
agem
ent
(com
pany
ris
k an
d pe
ople
ris
k)Fu
nd m
anag
er t
o en
sure
tha
t ass
et/p
rope
rty
man
ager
has
pro
per a
nd s
uffici
ent r
esou
rces
in p
lace
to
man
age
the
asse
t (on
goin
g ov
ersi
ght)
Dis
cuss
, doc
umen
t and
tra
ck d
ialo
gue
wit
h fu
nd
man
ager
on
this
top
ic
Poo
r fina
ncia
l, le
gal,
tax,
env
iron
men
tal a
nd
tech
nica
l due
dili
genc
e
Due
dili
genc
e (D
D)
findi
ngs,
follo
w-u
p an
d m
onit
orin
g of
cha
nges
Due
dili
genc
e co
sts
Com
preh
ensi
ve in
itia
l DD
rep
ort
and
subs
eque
nt c
hang
es in
re
late
d m
atte
rs
Dea
d de
al c
osts
At a
cqui
siti
on: fi
nanc
ial,
lega
l, ta
x, e
nvir
onm
enta
l and
te
chni
cal d
ue d
ilige
nces
to
be p
erfo
rmed
by
serv
ice
prov
ider
s
Dur
ing
hold
ing
phas
e: fu
nd m
anag
er t
o fo
llow
-up
on
init
ial D
D fi
ndin
gs; f
und
man
ager
to
mon
itor
lega
l, ta
x an
d re
gula
tory
cha
nges
At a
cqui
siti
on: o
btai
n an
d re
view
DD
rep
orts
(ens
ure
DD
s ar
e pr
oper
ly p
erfo
rmed
)
Dur
ing
hold
ing
phas
e: o
btai
n an
d re
view
fund
m
anag
er r
epor
t
Cont
ract
ual o
blig
atio
ns
resu
ltin
g fr
om d
ispo
sal
Dis
posa
l do
cum
enta
tion
Gua
rant
ees
or c
omm
itm
ents
is
sued
in t
he d
ispo
sal
docu
men
tati
on
Fund
man
ager
to
ensu
re p
rope
r ass
essm
ent o
f gu
aran
tees
and
com
mit
men
ts is
sued
in t
he d
ispo
sal
docu
men
tati
on
At d
ispo
sal:
revi
ew, c
omm
ent a
nd s
ign
off t
he
‘dis
posa
l com
mit
tee’
pap
er p
rior
to
final
tra
nsac
tion
ap
prov
al
Valu
atio
n ri
skM
arke
t val
ue m
is-
stat
emen
tsIn
depe
nden
ce a
nd
com
pete
nce
of t
he
exte
rnal
app
rais
er
Issu
es n
oted
wit
h th
e in
depe
nden
ce a
nd c
ompe
tenc
e of
th
e ex
tern
al a
ppra
iser
At a
cqui
siti
on a
nd d
urin
g ho
ldin
g ph
ase:
doc
umen
ted,
tr
ansp
aren
t and
inde
pend
ent v
alua
tion
rev
iew
pr
oces
s to
be
impl
emen
ted
by A
IFM
At a
cqui
siti
on a
nd d
urin
g ho
ldin
g ph
ase:
* Ch
eck
inde
pend
ence
and
com
pete
nce
of e
xter
nal
appr
aise
r
* Ch
eck
com
plia
nce
of a
ppoi
ntm
ent p
roce
dure
s
* Ap
prop
riat
e in
volv
emen
t and
ove
rsig
ht in
val
uati
on
revi
ew p
roce
ss
Com
plia
nce
of e
xter
nal
appr
aise
r app
oint
men
tIs
sues
not
ed r
egar
ding
co
mpl
ianc
e of
the
ext
erna
l ap
prai
ser a
ppoi
ntm
ent p
roce
ss
(acc
orda
nce
wit
h pr
ofes
sion
al
stan
dard
s an
d in
dust
ry p
ract
ices
)
Conc
lusi
ons
of
inde
pend
ent v
alua
tion
re
view
pro
cess
Issu
es n
oted
in t
he c
oncl
usio
ns
of t
he in
depe
nden
t val
uati
on
revi
ew p
roce
ss (r
evie
w o
f the
va
luat
ion
mod
el a
nd u
nder
lyin
g as
sum
ptio
ns u
sed
by t
he e
xter
nal
appr
aise
r)
rics.org
13Effective from 1 March 2018 RICS guidance note, Europe
Fund
leve
l ris
ksRi
sk c
ateg
ory
Risk
sKe
y ri
sk
indi
cato
rs (K
RIs)
Risk
des
crip
tion
/ ex
plan
atio
nEx
pect
ed c
ontr
ols/
proc
esse
sCh
ecks
to b
e pe
rfor
med
by
the
AIFM
RM
Mar
ket r
isk
Geo
grap
hica
l co
ncen
trat
ion
% m
arke
t val
ue p
er
coun
try/
city
Incr
ease
of f
und
leve
l exp
osur
e to
a
give
n co
untr
y/ci
ty
Fund
man
ager
to
mon
itor
and
rep
ort o
n co
untr
y/ c
ity
conc
entr
atio
n an
d on
cur
renc
y ri
skAt
acq
uisi
tion
: che
ck c
urre
ncy
hedg
ing
arra
ngem
ents
Dur
ing
hold
ing
phas
e: o
btai
n an
d re
view
rep
ort
Mac
ro-e
cono
mic
ris
kCu
rren
cyFo
reig
n ex
chan
ge is
sues
res
ulti
ng
from
cur
renc
y flu
ctua
tion
s in
co
untr
ies
in w
hich
the
fund
is
inve
sted
Cred
it ri
sk/
coun
terp
arty
risk
Inab
ility
to
draw
dow
n un
calle
d co
mm
itm
ents
Cred
it q
ualit
y of
in
vest
ors
Dec
reas
e of
the
cre
dit q
ualit
y of
inve
stor
s (i
f cre
dit r
atin
g no
t ava
ilabl
e, u
se a
lter
nati
ve
asse
ssm
ent)
Dis
cuss
, doc
umen
t and
tra
ck d
ialo
gue
(i.e
. dec
reas
e in
cre
dit q
ualit
y te
mpo
rari
ly a
ccep
tabl
e, in
itia
tive
s ta
ken
to c
lose
ly m
onit
or in
vest
or s
olve
ncy,
etc
.)
Rev
iew
pro
cess
(e.g
. met
hodo
logy
to
dete
rmin
e in
vest
or s
olve
ncy,
use
of s
ever
al in
depe
nden
t so
urce
s of
info
rmat
ion)
Tena
nts’
con
cent
rati
on%
inco
me
per t
enan
tIn
crea
se o
f fun
d le
vel e
xpos
ure
to
a gi
ven
tena
nt
Asse
t man
ager
to
mon
itor
ten
ant/
indu
stry
/fina
ncia
l in
stit
utio
n co
ncen
trat
ion
and
issu
e ‘a
sset
leve
l re
port
’ to
fund
man
ager
At a
cqui
siti
on: c
heck
impa
ct o
f acq
uisi
tion
on
fund
co
ncen
trat
ion
rati
os
Dur
ing
hold
ing
phas
e: o
btai
n an
d re
view
‘ass
et le
vel
repo
rt’
Indu
stry
con
cent
rati
on%
inco
me
per i
ndus
try
Incr
ease
of f
und
leve
l exp
osur
e to
a
give
n in
dust
ry s
ecto
r
Fina
ncia
l ins
titu
tion
co
ncen
trat
ion
% e
xpos
ure
per
finan
cial
inst
itut
ion
e.g.
on
cash
, loa
ns,
deri
vati
ves
Incr
ease
of f
und
leve
l exp
osur
e to
a
give
n fin
anci
al in
stit
utio
n
Ope
rati
onal
risk
(g
over
nanc
e)N
on-c
ompl
ianc
e w
ith
anti
-mon
ey
laun
deri
ng, (
tax)
la
ws
and
regu
lati
ons,
go
vern
ance
Non
-com
plia
nce
wit
h AM
L pr
oced
ures
, fu
nd (t
ax) l
aw
and
regu
lati
ons,
go
vern
ance
Issu
es id
enti
fied
in A
ML
proc
edur
es o
r bre
ach
in (t
ax) l
aws
and
regu
lati
ons,
e.g
. tra
nsfe
r pr
icin
g, le
vera
ge r
atio
und
er g
ross
an
d co
mm
itm
ent m
etho
d
Dis
cuss
, doc
umen
t and
tra
ck d
ialo
gue
(i.e
. act
ion
plan
to
beco
me
com
plia
nt, r
epla
cem
ent o
f ext
erna
l se
rvic
e pr
ovid
er, e
tc.)
Dur
ing
acqu
isit
ion,
hol
ding
and
dis
posa
l: ob
tain
and
re
view
con
trol
rep
orts
; mon
itor
impl
emen
tati
on o
f re
med
iati
on a
ctio
n pl
an
Wro
ng o
r ine
ffec
tive
op
erat
iona
l pro
cess
es
such
as
over
sigh
t on
ext
erna
l ser
vice
pr
ovid
ers
or in
tern
al
cont
rols
Rep
orti
ng d
elay
s,
# in
cide
nts
per
repo
rtin
g pe
riod
Non
-com
plia
nce
wit
h op
erat
iona
l pr
oces
ses
Bre
ach
of in
vest
men
t re
stri
ctio
nsIn
vest
men
t re
stri
ctio
ns a
s de
fined
in le
gal f
und
docu
men
tati
on
Bre
ach
in in
vest
men
t res
tric
tion
s fo
rese
en in
lega
l fun
d do
cum
enta
tion
At a
cqui
siti
on: p
ortf
olio
man
ager
to
chec
k al
ignm
ent
wit
h in
vest
men
t res
tric
tion
s
Dur
ing
hold
ing
phas
e: fu
nd c
ontr
olle
r to
mon
itor
in
vest
men
t res
tric
tion
s an
d re
port
to
fund
man
ager
(i
nclu
ding
rem
edia
tion
act
ions
)
At d
ispo
sal:
fund
con
trol
ler t
o re
port
sta
tus
of
inve
stm
ent r
estr
icti
ons
to fu
nd m
anag
er
At a
cqui
siti
on: c
heck
alig
nmen
t wit
h in
vest
men
t re
stri
ctio
ns
Dur
ing
hold
ing
and
disp
osal
pha
se: o
btai
n an
d re
view
fu
nd c
ontr
olle
r rep
ort
Real estate risk management under the Alternative Investment Fund Managers Directive (AIFMD)
14 Effective from 1 March 2018RICS guidance note, Europe
Risk
cat
egor
yRi
sks
Key
risk
in
dica
tors
(KRI
s)Ri
sk d
escr
ipti
on/
expl
anat
ion
Expe
cted
con
trol
s/pr
oces
ses
Chec
ks to
be
perf
orm
ed b
y th
e AI
FM R
M
Liqu
idit
y ri
skIn
abili
ty t
o m
eet
inve
stor
red
empt
ion
requ
ests
Liqu
idit
y st
ress
tes
t co
nclu
sion
s
Impa
ct o
f inv
esto
r pr
ofile
s
Dec
reas
e in
liqu
idit
y of
ass
ets
resu
ltin
g in
diffi
cult
ies
to d
ispo
se
the
asse
t in
view
of m
eeti
ng
inve
stor
red
empt
ion
noti
ces
Freq
uenc
y of
inve
stor
red
empt
ion
requ
ests
, e.g
. fro
m F
oFs,
mig
ht
tend
enti
ousl
y be
hig
her c
ompa
red
to r
edem
ptio
n re
ques
ts fr
om
pens
ion
fund
inve
stor
s
At a
cqui
siti
on:
*Liq
uidi
ty o
f ass
ets
to b
e an
alys
ed b
y tr
ansa
ctio
n te
am a
nd r
epor
ted
in ‘i
nves
tmen
t com
mit
tee’
pap
er
*Fun
d in
vest
or p
rofil
es t
o be
ana
lyse
d an
d re
port
ed
by fu
nd m
anag
er (r
edem
ptio
n co
ntro
l pro
cess
in
plac
e fo
r ope
n-en
ded
fund
s)
*Liq
uidi
ty s
tres
s te
st t
o be
init
iate
d by
fund
man
ager
(e
stim
atio
n of
red
empt
ion
requ
ests
and
fres
h m
oney
, e.
g. v
ia n
ew in
vest
ors)
Dur
ing
hold
ing
and
disp
osal
pha
se:
*Liq
uidi
ty o
f ass
ets
to b
e m
onit
ored
by
asse
t/po
rtfo
lio m
anag
er a
nd r
epor
ted
to fu
nd m
anag
er
*Cha
nges
in a
lloca
tion
of f
und
inve
stor
pro
file
mon
itor
ed a
nd r
epor
ted
by fu
nd m
anag
er
(red
empt
ion
cont
rol p
roce
ss in
pla
ce fo
r ope
n-en
ded
fund
s)
*Liq
uidi
ty s
tres
s te
st t
o be
init
iate
d by
fund
man
ager
(e
stim
atio
n of
red
empt
ion
requ
ests
and
fres
h m
oney
, e.
g. v
ia n
ew in
vest
ors)
At a
cqui
siti
on:
*Rev
iew
, com
men
t and
sig
n off
the
‘inv
estm
ent
com
mit
tee’
pap
er p
rior
to
tran
sact
ion
appr
oval
*Rev
iew
and
com
men
t on
fund
inve
stor
pro
file
and
on
liqui
dity
str
ess
test
Dur
ing
hold
ing
and
disp
osal
pha
se:
*Obt
ain
and
revi
ew a
sset
/por
tfol
io m
anag
er r
epor
t
*Rev
iew
and
com
men
t on
fund
inve
stor
pro
file
and
on
liqui
dity
str
ess
test
Exte
rnal
fina
ncin
gP
ledg
e of
ass
ets
Cros
s-co
llate
ralis
atio
n of
ass
ets
At a
cqui
siti
on: e
xter
nal fi
nanc
ing
guar
ante
es t
o be
str
uctu
red
by t
rans
acti
on t
eam
and
rep
orte
d in
‘in
vest
men
t com
mit
tee’
pap
er
Dur
ing
hold
ing
phas
e: fu
nd c
ontr
olle
r to
mon
itor
st
atus
of i
ssue
d gu
aran
tees
and
rep
ort t
o fu
nd
man
ager
(in
clud
ing
rem
edia
tion
act
ions
)
At d
ispo
sal:
exte
rnal
fina
ncin
g gu
aran
tees
to
be
rest
ruct
ured
by
tran
sact
ion
team
and
rep
orte
d in
‘in
vest
men
t com
mit
tee’
pap
er
At a
cqui
siti
on: r
evie
w, c
omm
ent a
nd s
ign
off t
he
‘inve
stm
ent c
omm
itte
e’ p
aper
pri
or t
o tr
ansa
ctio
n ap
prov
al
Dur
ing
hold
ing
phas
e: o
btai
n an
d re
view
fund
co
ntro
ller r
epor
t
At d
ispo
sal:
revi
ew, c
omm
ent a
nd s
ign
off t
he
‘inve
stm
ent c
omm
itte
e’ p
aper
pri
or t
o tr
ansa
ctio
n ap
prov
al
Clus
ter r
isks
Expi
ry o
f lea
ses,
mat
urit
y of
loan
s at
the
sam
e ti
me
At a
cqui
siti
on: e
xpir
y of
leas
es a
nd m
atur
ity
of lo
ans
to b
e st
ruct
ured
by
tran
sact
ion
team
and
rep
orte
d in
‘in
vest
men
t com
mit
tee’
pap
er
Dur
ing
hold
ing
phas
e: fu
nd c
ontr
olle
r to
mon
itor
st
atus
of e
xpir
y of
leas
es a
nd m
atur
ity
of lo
ans
and
repo
rt t
o fu
nd m
anag
er (
incl
udin
g re
med
iati
on)
At a
cqui
siti
on: r
evie
w, c
omm
ent a
nd s
ign
off t
he
‘inve
stm
ent c
omm
itte
e’ p
aper
pri
or t
o tr
ansa
ctio
n ap
prov
al
Dur
ing
hold
ing
phas
e: o
btai
n an
d re
view
fund
co
ntro
ller r
epor
t
Fina
ncia
l str
uctu
ring
Cas
h ou
t res
tric
tion
sS
truc
turi
ng a
nd e
xter
nal
finan
ce c
oven
ants
lim
itin
g ca
sh
dist
ribu
tion
s fr
om S
PVs
(cas
h tr
aps)
At a
cqui
siti
on: f
und
cont
rolle
r to
repo
rt r
estr
icti
ons
in ‘i
nves
tmen
t com
mit
tee’
pap
er
Dur
ing
hold
ing
phas
e: fu
nd c
ontr
olle
r to
mon
itor
cas
h ou
t pro
cess
es
At a
cqui
siti
on: r
evie
w, c
omm
ent a
nd s
ign
off t
he
‘inve
stm
ent c
omm
itte
e’ p
aper
pri
or t
o tr
ansa
ctio
n ap
prov
al
Dur
ing
hold
ing
phas
e: o
btai
n an
d re
view
fund
co
ntro
ller r
epor
t
Stra
tegy
risk
Alig
nmen
t of
perf
orm
ance
wit
h th
e bu
sine
ss p
lan
of t
he
fund
Bus
ines
s pl
an o
f the
fu
nd, c
ash-
on-c
ash
yiel
d, IR
R co
mpu
tati
on
Inab
ility
for t
he fu
nd t
o m
eet i
ts
finan
cial
tar
gets
Per
form
ance
mea
sure
men
t to
be a
sses
sed
by p
ortf
olio
man
ager
to
chec
k al
ignm
ent w
ith
inve
stm
ent s
trat
egy
and
repo
rted
in ‘i
nves
tmen
t co
mm
itte
e’ p
aper
(in
clud
ing
rem
edia
tion
act
ions
du
ring
hol
ding
pha
se)
At a
cqui
siti
on, d
urin
g ho
ldin
g ph
ase
and
at d
ispo
sal:
revi
ew r
easo
nabi
lity
of a
ssum
ptio
ns u
nder
lyin
g pe
rfor
man
ce c
alcu
lati
on a
s st
ated
in ‘i
nves
tmen
t co
mm
itte
e’ p
aper
Appendix B: Glossary
AIF means any collective investment undertaking (including investment compartments thereof) that raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors and which does not require authorisation pursuant to the UCITS Directive (undertakings for collective investment in transferable securities – Directive 2009/65/EC).
AIFM means an alternative investment fund manager as defined in article 1(46) of the AIFMD.
AIFMD means Directive 2011/61/EU of 8 June 2011 of the European Parliament and of the Council on alternative investment fund managers as amended from time to time (available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:174:0001:0073:EN:PDF).
Counterparty risk means the risk of loss resulting from a counterparty to a transaction defaulting on its contractual obligations prior to the final settlement of the transaction (replacement risk).
Concentration risk means the risk of adverse effects on the value of the portfolio of an AIF arising from lack of diversification/large position in a single asset or market exposure.
Delegated Regulations means Delegated Regulations (EU) no 231/2013 of 19 December 2012 of the European Commission supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (known as Level II).
External appraiser refers to the third party independent appraiser performing the valuation irrespective of whether or not the external valuer role has been accepted as per article 19 of AIFMD.
INREV means the European Association for Investors in Non-Listed Real Estate Vehicles (www.inrev.org).
Investment advisor advises the AIFM portfolio management function regarding (dis)investments of assets of an AIF. Investment advisors do not make investment decisions. The responsibility for investment decisions lies with the AIFM portfolio management function.
KPI means key performance indicator.
KRI means key risk indicator.
Liquidity risk means the risk of the fund (in case of liquidity needs) not being able to liquidate its investments in a timely and cost-effective manner.
LTV means loan-to-value.
Market risk means the risk of a negative impact on the value of property as a result of changes in macro-economic and micro-economic factors as well as in capital markets.
Operational risk means the risk of loss resulting from inadequate processes and failures in relation to people and systems of the various service providers to the AIF or from external events, including legal and documentation risk (as such, it covers the risk resulting from the transaction, settlement and valuation procedures operated on behalf of the AIF).
WALB means weighted average lease period until the first break option.
rics.org
15Effective from 1 March 2018 RICS guidance note, Europe
EURO
PE/N
OVEM
BER
2017
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33/R
ICS/
RICS
GU
IDAN
CE N
OTE
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