The EU decision making bodies – the Commission, Council and the Parliament – have recently agreed on the proposed regulation for the creation of a new authorised collective investment vehicle, known as European Long-term Investment Funds (ELTIFs). Although ELTIFs have been viewed sceptically within the real estate sector, this agreement could present opportunities for fund managers and their investors. ELTIFs are aimed at encouraging long-term investment into asset classes which are too illiquid for use in existing fund structures such as UCITS. It is anticipated that the Regulation will take effect later this year.
ELTIFs, which may be listed or unlisted, are closed-ended and subject to uniform rules on investment, diversification and concentration. The funds will be structured as Alternative Investment Funds (AIFs) under the EU Alternative Investment Fund Managers Directive (AIFMD) and are required to be managed by an authorised EU AIFM.
The proposed regulation permits investment in residential and commercial real estate, but only where they are integral to or an ancillary element of a long-term investment project “that contributes to smart, sustainable and inclusive growth in Europe or the EU’s energy, regional and cohesion policies”. In addition, assets should be targeted to demonstrate a long-term commitment, and, further, ELTIFs should not promote speculative investments in real assets.
Alternative real estate sectors could qualify: for instance, schools, hospitals and prisons as well as social housing, healthcare and student accommodation. Commercial accommodation for new start-ups and SMEs, especially in targeted industries, in addition to brownfield redevelopment and urban regeneration projects may also qualify as eligible assets. More guidance from the European Securities and Markets Authority, the EU’s Supervisory Authority is expected within the next year. In addition, the national tax authorities need to confirm the status of ELTIFs – hopefully tax transparent or exempt.
Real estate fund managers should monitor the ELTIF legislative progress. Their investors may look for long-term investment returns generated by certain alternative sectors.
(February 2015)
Author
