Non-listed is still relatively young, joining the real estate landscape alongside direct and listed just over 20 years ago. INREV has been around for much of that time and was formed by a handful of industry players who had a mission to professionalise the industry, promote non-listed real estate as a serious asset class and as a pillar of knowledge, insight and expertise in Europe.
As momentum gathered and interest toward non-listed real estate grew, it soon became clear that a level playing field needed to be established and a standard way of operating within the industry needed to exist. The INREV Guidelines were created in response to this and to set the standards for this new asset class.
The first module – Corporate Governance was created back in 2005 to help investor and investment managers adhere to a standard framework for the structure, processes, policies and rules for the management of an investment vehicle. The reporting module soon followed providing further guidance for investors and investment managers along the full spectrum of an investment fund, demonstrating a best practice on fund reporting and providing a consistent approach for all. New modules were created one by one thereafter, further cementing the status of the non-listed real estate as a professional industry.
By 2008 the guidelines had grown to include individual modules covering corporate governance, reporting, property valuation, performance measurement, INREV NAV, Fee and Expense metrics, and liquidity. At this stage these individual models were integrated to form one set of guidelines, the INREV Guidelines.
The objectives of the INREV Guidelines are:
1. to establish requirements and best practices within the sector and to help managers implement them in practice;
2. to ensure that investors in non-listed real estate vehicles obtain consistent, understandable, easily accessible and reliable information that can be compared across investments and between different periods.
These Guidelines remained relatively unchanged until a major review started in 2012. After 18 months of in-depth consultation with the members, the Guidelines were revised to include the latest market practice following the GFC and in line with how the market was evolving for example the routes to non-listed had expanded beyond just funds and now included a wider range of products such as joint ventures, club deals and separate accounts. And as the market matured it was becoming subject to more and more regulation, which needed to be reflected in the Guidelines.
The INREV Guidelines
The INREV Guidelines are designed for non-listed real estate vehicles for institutional investors. Since non-listed vehicles can differ considerably, INREV provides a modular approach to guide investors and managers in agreeing on an appropriate level of adoption of INREV best practices and in deciding on the level of compliance with INREV requirements for individual modules.
INREV’s best practice frameworks developed for the modules of corporate governance, liquidity and valuation, are qualitative in nature and individual vehicles will adopt them in different ways. INREV’s objective is to ensure that investors are provided with a clear and accurate description of the corporate governance, liquidity and valuation frameworks of a given non-listed vehicle.
In contrast to best practices, INREV’s requirements in the modules covering INREV NAV, reporting, fee and expense metrics and INREV data delivery, are more technical in nature. With these requirements, there is no room for interpretation: the requirements are either followed, or they are not. In addition, in the reporting and fee and expense modules, some of the INREV Guidelines are recommendations rather than requirements. Although INREV would encourage members to follow such recommendations, they are not required to be followed in order to claim full compliance with the INREV reporting module.
The INREV Guidelines address this wide range of non-listed vehicles. Most principles are applicable to different types of non-listed real estate vehicles, but there may be differences in implementation. This could result in the need for vehicle-specific guidelines.
The revised INREV Guidelines were published in an on-line format, offering a filter functionality. After selecting specific vehicle characteristics, the customised guidelines, tools and examples will be provided. Most of the existing guidelines have been developed with non-listed real estate vehicles in mind, but over the years more details were added for open end funds and debt funds . These include guidance on how to ensure liquidity and transparency for open end vehicle structures as well as defining key terms used for debt products and valuation of debt . Where necessary INREV will develop further guidance applicable to specific investment vehicles over time.
A practical toolkit
A set of complimentary examples, tools, templates and Q&A’s have been developed to help members to implement the Guidelines but they do not form part of the Guidelines.
Examples serve as a pattern to be followed by market participants to illustrate a certain standard, such as the INREV NAV computation, TGER example, and the sustainability best practice example.
Tools support market participants in assessing specific situations and in complying efficiently with INREV Guidelines The original self-assessment tools for the corporate governance and the reporting modules, have been extended to all modules, resulting in a tool designed for members to assess themselves against compliance with the Guidelines. Investment managers can use this tool to effectively report to investors on how they adhere to the different modules of the Guidelines and to compare their adherence with that of their peers.
Streamlining the process
The templates that have been released include the Due Diligence Questionnaire, the Standard Data Delivery Sheet, a Debt and Derivatives Disclosure, a standardised NDA and most recently the Rent Collection template.
The well-known INREV Due Diligence Questionnaire, with different versions that are tailored for different vehicles, assists an investor or consultant in determining, in principle, whether a proposal fits the investor’s investment objectives. The questionnaire provides, relatively quickly, an understanding of:
1. a vehicle’s strategy, risk processes, management, terms and (projected) performance;
2. an investment manager’s structure, non-listed real estate business and track record; and
3. the operational processes required to manage a vehicle.
As the non-listed real estate market has evolved, the DDQ has been regularly updated, most recently in 2018. In this latest iteration, a phased approach has been introduced: Preliminary, Advanced and Supplementary. This phased approach should benefit both the investor and investment manager by tailoring the type of questions to the relevant stage in the due diligence process, as well as allowing more sensitive information to be provided in the later stages. Several appendixes have been added to address, increasingly relevant topics for our industry such as Tax, Climate Change and Impact Investing.
Another well used template, the Standard Data Delivery Sheet (SDDS) was introduced in 2011 and was a first attempt to standardize data exchange between managers and investors. This template now forms the basis of the development of our IT Data platform (which will be covered in the next edition of IQ).
Here today but not gone tomorrow
The INREV Guidelines must always remain fit for purpose and are open to ongoing review to best serve investors and investment managers as they navigate the evolving landscape.
Previous updates in this respect include adding filters for searchability by investment structure and product type – the most recent being for debt funds. The self-assessment dashboard has also become more interactive, becoming easier to share input with investors and also for investment managers to self- review to understand where they stand within the market and any potential areas for improvement.
Major updates to the Guidelines will always be in consultation with our members, giving them the chance to have their say and influence the development of a crucial framework that represents how professional and transparent the non-listed asset class has become.
A collaborative approach
In the past months we have asked members feedback on a set of recommendations for Open End Fund Pricing and a Code of Tax Conduct. Feedback is reviewed before we include these topics into our Guidelines. While the feedback on Open End Fund Pricing recommendations is still being reviewed, feedback received on the Code of Tax Conduct has been reviewed and integrated, and the Code will now be added as a new module to the INREV Guidelines on January 1. A holistic review will take place next year to include these topics alongside different aspects of ESG.
Finding the right balance between updates and stable guidelines remains of essence, to ensure clarity on the most current version and to enable time for the transition toward updated requirements and recommendations. We will clearly communicate any changes through our usual channels, but the most recent updates of the Guidelines or additions of templates, tools, or examples will also be listed on the Guidelines section of our website, and we encourage you to regular check this for any updates.